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GDPhursday – Data Points to Sharp Decline

Image0.2%! 

That's all we're getting per the most recent GDPNow Forecast from the Atlanta Fed.  Are they setting the bar so low it can only be beat or has our economy really fallen off a cliff just 4,5 and 6 months after $2.2Tn in stimulus was pumped into the economy beginning at the end of March?  What does it say about our economy if 10% of our GDP going out in stimulus only gave us a 2-month boost?  

And, keep in mind that the Government spent tens of Billions of Dollars getting everyone vaccinated in Q2 – that was additional spending as well.  Q2's GDP rate was 6.7% growth but, again, that did include $2.2Tn of stimulus in a $5Tn quarter – 44% of the total netted us 6.7% growth = sad….

We're not even quite at $20Tn, using the inflation-adjusted GDP model, which has us at $19.37Tn – just a tiny bit over the $19.2Tn we were clocking in Q4 2020.  That has not, of course, stopped the S&P 500 from going from 3,300 to 4,560 in that time – up 38% in price for 0.87% more economy – inflated just like everything else these days because the solution to all our problems has been to give more and more money to the already rich, who have prospered like never before in the past two years.  

Hotel Occupancy was at 65% of 2019 levels last week, restaurants were at 95% thanks to a surge in home delivery services.  Consumer Savings are up but that's because the Government handed out money and people are too afraid to spend it.

chart of consumer sentimentIn reality, Consumer Sentiment is back down to where it was during the pandemic as real-world economic conditions are not that good for the bottom 99.9%, who need a REAL economy to be able to make their money.  Only the ultra-rich, who are disconnected from having to actually provide goods or services people want, are thriving in this false economy but those people control the media and, therefore, the narrative that tells us, over and over, how wonderfully things are going..  

8:30 Update:  2% was the GDP number so better than the Fed expected but much worse then the 3.2% consensus.  It's a prelminary reading, so subject to change and traders are likely to chalk up the miss to supply disruptions (which is certainly part of it) but it's not likely to cool down the rally, as we feared it might.  Now we'll have to go back to worrying that something else is going to burst our market bubble but it doesn't look like it will be Q3 earnings or the GDP, which can still be "fixed" next quarter with a wave of the stimulus wand – which is more likely to happen now that we have a worrying slowdown to report.

That's means we'll take $1,000 per contract and run on our S&P 500 shorts (see yesterday's Morning Report, which would have cost you $3 per day to subscribe to).  We were hoping for more of a dip than this but it's not worth taking a chance with a wishy-washy GDP number.

Congratulations to all who played along at home.  Later today, in our live Member Chat Room, we're going to move forward with the IBM, INTC and CAKE trade ideas we discussed in yesterday's webinar as well.  That's what we are able to do in a well-balanced portfolio – we scale out when things look toppy and scale back in when conditions improve

Earnings Season always gives us a selection of stocks that go on sale and we discussed several ways yesterday how we can take advantage of it.  

 


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  1. Good Morning.


  2. Phil I think you can put MO also on your list today at 45


  3. Good morning


  4. Phil, We need to look at LPL, Was supposed to be in earnings portfolio in Sept, but i didn't see it in the review.





  5. Good morning!  

    Indexes popping at the open but mostly because the Dollar is diving (less GDP = less demand for Dollars), so take the early action with a grain of salt:

       

    Less GDP also means less need for oil but that's up anyway as weaker Dollar is more important – in the short run:

        

    MO/Yodi – Getting there but I don't want to get all loaded up on things – too early to make that call.

    LPL/Stuart – We were going to add it but then we ended up cutting back the portfolios instead:

    Submitted on 2021/08/20 at 11:10 am

    LPL/Kgab – I missed adding it but, since we're cutting back, consider it cut.  Chip shortage and more Covid means more trouble for LPL.

    The trade idea was actually from 8/5 and was:

    We never play LG Display (LPL) because they don't have long-term options but they are right at $10 so we have a chance to sell a lot of premium at a good strike – so let's do that for the Earnings Portfolio:

    • Buy 50 LPL Jan $7.50 calls for $2.45 ($12,250)
    • Sell 50 LPL Jan $10 calls for $1 ($5,000) 
    • Sell 25 LPL Jan $10 puts for $1.35 ($3,375) 

    That's net $3,875 on the $12,500 spread that's starting out pretty much 100% in the money so all LG has to do is hold $10 for 169 days and this trade makes $8,625 (222%).  The risk is owning 2,500 shares at $10 + $1.55 (the $3,875 loss) but LG should be making about $1.4Bn this year against what is now a $7Bn market cap so stupidly cheap means we don't mind getting "stuck" with them for the long-haul.

    Let's say it drops to $8 and we we have 2,500 at $11.55 so we sell 25 $7.50 puts for $1.25 and that knocks our net down to $6.25 on round 2 for an average of $8.90 and we could then sell 25 $10 calls to drop our basis to $8.65 with a call away at $10 for a 15.6% profit, despite the dip.  Worst case then is owning 5,000 shares at ($7.50 + $8.65)/2 = $8.075 ($40,375) so the bottom line is, if we don't REALLY want to own 5,000 shares for $8.075 – why would we sell any $10 puts?  

    I like any stock where a simple call sale pays 10% in 6 months as it means as long as they don't go bankrupt in 5 years – I should get my money back!  

    It was a Top Trade but we didn't like it enough to save it when we cut back the portfolios – there's no compelling reason to own them in a crash and the short time-frames made them less attractive too.  Now they are at $8.37 and the $7.50 ($1.05)/$10 (0.20) bull call spread is 0.85 ($4,250) and the short $10 puts are $2 ($5,000) for net – $750.  Not playing well and difficult to adjust (longer months are not out), which is why we decided not to stick with it.  Again, the losses are coming from the short puts and those would be rolled along (the April 22nd $10 puts are out and they are $2.25), as would the remaining value of the spread, which was net $1.45 at entry.  The April 22nd $7.50 calls are $1.30 so it would cost 0.25 to buy more time on those – if you were so inclined.



  6. T popping off $25.

    Got to decide what to do with IBM, INTC and CAKE:



  7. also don't Phil / CAKE – looking forward to your analysis because I see a longer downtrend with a negative EPS. You have the "value" skills to spot hidden gems. I wish you could have a master class on fundamental analysis as this is my real weak spot. I pretty decent putting the position together but spotting the value stock is the weak part. 
     

    You said to remind you about VIAC too


  8. Stupid cursor jumped on my last post


  9. VIAC/Jeddah – That was about me going through our positions and making sure we're aggressive enough.

    As to CAKE:

    The Cheesecake Factory - Global Footprint

    Driving Strong Pandemic Recovery with Industry-Leading

    We Believe Stable, Agile Brands Will Be

    Driving Strong Pandemic Recovery with Industry-Leading

    That's a big number, 5% margin improvement as locations mature drives profit growth as they continue to expand.

    We Have Resumed Strong Unit Growth With

    They are also constantly experimenting with new ideas – I like that.  Don't forget CMG spun out of MCD.

    Durable Business Over Time

    $41.26 is $2.14Bn for the company and they are recovering this year and should make about $125M so 20x earnings but they expect to be on track back towards $200M next year and growth plans are for 30% more restaurants over 3 years and we see above how profitability matures over time so I consider Covid a great excuse for missing the mark recently.

    We already have CAKE in the LTP and it's not a big position so we're taking advantage of the dip to adjust it:

    CAKE Long Call 2023 20-JAN 45.00 CALL [CAKE @ $42.26 $0.35] 20 9/2/2021 (451) $20,600 $10.30 $-3.60 $10.30     $6.70 $0.35 $-7,200 -35.0% $13,400
    CAKE Short Call 2023 20-JAN 55.00 CALL [CAKE @ $42.26 $0.35] -20 9/2/2021 (451) $-13,200 $6.60 $-2.70     $3.90 - $5,400 40.9% $-7,800
    CAKE Short Put 2023 20-JAN 40.00 PUT [CAKE @ $42.26 $0.35] -20 9/2/2021 (451) $-13,400 $6.70 $0.80     $7.50 - $-1,600 -11.9% $-15,000

    In the LTP, we'll roll the 20 2023 $40 puts at $7.90 ($15,800) to 15 of the 2024 $45 puts at $14 ($21,000) which DECREASES our obligation from $80,000 to $67,500 (on 500 less shares) AND puts $5,200 in pocket so, since we originally collected $13,400 for the puts, we now have $18,600 credit so net $48,900 on 1,500 shares is $32.60/share if assigned – we can certainly live with that!  

    More realistically, the original spread was a net $6,000 credit so that plus $5,200 new dollars is net $11,200 collected so call that net $56,300 or $37.53 if assigned.  Still something we can live with and that's only if we're dumb enough to let our spread go to zero.  It would be wasteful to let these low prices go to waste so let's also roll our 20 2023 $45 calls at $6.15 ($12,300) to 30 of the 2024 $35 ($13)/55 ($5.40) bull call spreads at $7.60 ($22,800) so we're spending net $10,500 to widen the spread from $20,000 potential to $60,000 potential at the same target strike.

    We should also put a stop on 1/2 (10) of the short 2023 $55 calls at $5 ($5,000) – just to be safe

    To initiate this spread, I'd start by adding 10 long 2024 $35 calls at $13 while offering good prices for the rolls but no hurry to trigger.  If the calls start filling, we can wait for earnings and hopefully add short calls at much better prices but, if not, we simply sell the 2024 $50 calls instead, which are now $8 and, if we get $6 for them (delta is 0.50 so CAKE would have to fall $4 or 10%) that's still $3,000 less than we planned on spending and we'd be in a $45,000 spread instead of a $60,000 spread (but not worried about losing on our 2023 short calls).  

    Always have a plan for each outcome – especially into earnings (11/3). 

    If all goes well, CAKE goes up 10% and we will get $8 for the short $55s.  


  10. trade today,  someone sold 88,000 TSLA March 2023 $2000 calls for $52+    a $126 M trade

    there is no way TSLA gets to $2000 in a year and a half ???? 


  11. above not entirely correct    The initial trade was about 24,000 calls but when I looked again, 88,000 calls had been traded 


  12. TSLA/Stock – That would be crazy but they keep doing crazy, don't they?

    Dollar going lower and lower:

    Volume on SPY is super-low (20M).


  13. Hi Phil.  Rejoined recently after being on board with you 10 years ago.  Good to read/hear your insights again.  Any thought on the EWZ spread.  I could not find it in the portfolio reviews.  Had a Jan 22 31/34.  It has been hovering around the bottom end and thinking I need to adjust soon?  Best.  Mike


  14. Welcome back Mike!  We haven't done EWZ in ages – I was still in NY when we did that play.  Let me know what spread you do have.


  15. Must be losing my mind.  That I saw it here.  I have a Jan 22 31/34 spread.  Deciding if I should roll it or just kill it.


  16. We did play EWZ a long time ago – I was on Chinese TV and we were talking about their scandals and I said they'd recover.  This is different as their economy is stalled due to Covid and, unlike us, they can't just print money to cover it up.  So, on the whole, not a huge fan and the time-frame is now too tight.  Not sure why you didn't take the money at $40 or $41 or $42 or back below $39 – if you are never going to take profits when you are ahead – then you will only take losses – unless you happen to have perfect timing – which few of us do.


  17. Phil// What is your take on LCID?  It is up $9.00 today.  Thanks.


  18. Phil,

    Your thoughts on CCL at these levels. Been reading that bookings are pretty high for next year.

    thanks


  19. Phil/EWZ-

     

    You did mention it as a recovery play — I have the same spread — maybe a Top Trade alert?  But you did do a write up  on EWZ at the end of September.


  20. LCID/Rookie – Don't know enough about them.  Another EV maker, people seem to like it but they liked Tucker too.  Supposedly, they will soon deliver their first cars and then you have years and years of losses to look forward to before maybe they make some money – so exciting!   $36.80 is $45Bn so they are already worth as much as Ford or Honda.  

    CCL/Harip – Booking are high but let's see how many survivors there are before going back into cruise ships.  I like RCL much better as a company and, don't forget, all these cruise lines and casinos now have massive debts to pay off that will crimp their earnings for years to come.  CCL lost $10.2Bn last year and is losing $7.6Bn this year so YAY!!! big improvement, right?  RCL has about the same cap and lost $5.7Bn last year and losing $4.2Bn this year – so I like them better but why would I put money into either one?  Another virus breakout that shuts them for another year and they may not be able to come back.

    PREVIEW-Higher ticket prices, onboard spending to keep Royal Caribbean afloat

    EWZ/Jeff – Wasn't a top trade and I can't find it in comments.  Last mention before today was 5/22/2020 and that was me disagreeing with GS's note to buy EWZ and I listed reasons not to (they did go up but now the same price as it was then).  Before that was:

    Good morning!

    As noted above, it's all about holding the bounce lines and then we'l want to see those 50-dmas taken back and none of that matters if they NYSE still can't get over 12,800 so I'm ready for a week vacation as nothing that happens between now and Tuesday, July 10th is going to mean very much.  

    I am going to head back to NJ next Thurs but decided to stay in Florida for the holiday (since we're already here and there's no school).

    Tweets/StJ – True!  Psychology true too…

    EWZ/Jabob – That was because the economy was being taken down over a beef contamination issue that was overblown.  In this case, the economy was being shut down by a strike (over now) that will not be easy to recover from and, despite the sell-off so far, we're still 100% higher than where I was pounding the table on the ($16).  What's at issue in Brazil now is how easily the striking truckers got their way (10-day strike), forcing even the CEO of state-run Petrobas to resign over fuel prices.   There's still talk of a possible coup as the Temer government has almost as many scandals as the Trumps – well, maybe 1/3 but that's still a lot!  

    If anything, I'd play PBR long at $10 as that's just $60Bn for a company with $88Bn in sales and oil at $75.  CVX has $134Bn in sales (1.5x) and has a $243Bn valuation (4x) and it's possible Brazil spins PBR private to get quick cash and get away from giving the people power over oil prices (and making it harder to blame the Government for them).  

    For PBR, the 2020 $12 puts are $3.30 and that's 13% off if assigned ($8.70) from here so let's sell 10 of those in the LTP for $3,300 and buy 30 of the 2020 $7 ($3.70)/$15 ($1) bull call spreads for $2.70 ($8,100) for net $4,900 on the $24,000 spread.  It's a good long-term hedge on high oil since we generally like to play it short-term short.  

     

     

    The U.S. economy grew by 2.0% last quarter, with the Delta variant and supply issues damping gains. Growth could accelerate during the holidays, analysts say.10 min ago 6 min read


  21. Phil/EWZ -

     

    Mentioned in the morning post of 9/23 — not an official play but wondering what you would do from here I guess..

     

    The Brazilian economy is further reopening as the pandemic eases in the country.  Brazil’s seven-day rolling average for virus-related deaths has fallen below 600 (about 1/2 of what the US suffers daily), compared with roughly 3,000 in April.  Meanwhile, Brazil's economy is picking up so tightening is not a death-knell for the economy – it's just an end to the Free Money Party the markets have been enjoying and not every Government runs themselves for the benefit of the Top 1%. 

    EWZ is Brazil's ETF and makes a nice play down here.  The Jan $31 ($3.75)/34 ($2.15) bull call spread is only net $1.60 on the $3 spread and you could buy 10 of those for $1,600 and sell 5 of the 2023 $25 puts for $3 ($1,500) and then you'd have net $100 in the $3,000 spread with $2,900 of upside potential and your worst case is owning 500 shares of EWZ for net $25.20, which is $8.15 (24%) below the current price.  Aren't options fun?


  22. CCL/Phil, Harip – speaking as your board epidemiologist, I've used Carnival Cruise Lines as a teaching example for years, as they've historically run far ahead of other lines in frequency of norovirus outbreaks. Norovirus is a very nasty vomiting and diarrhea bug lasting a couple of days that won't kill you but make you wish for death. It is perhaps the most highly transmissable virus, estimates of Ro run as high as 100.

    Nevertheless, there are control measures that will prevent outbreaks, notably keeping public restrooms cleaned regularly, and Carnival doesn't do that. This leads me to doubt their willingness to implement serious covid-19 measures.


  23. CAKE- just my 2 cents- I like the company and especially their food/cheesecake but have some reservations. They carry a rather heavy debt load as do many other firms and that has not been a hinderance. However, given the current fiscal spending intentions, I am leaning toward a further weakening of the $, thus more inflation along with higher interest rates which will have negative asset price pressure and perhaps even the possibility of a weakening/recessionary period where almost ten bucks for a slice of delicious cheesecake may not be so appealing to mall crawling suburbanites. 


  24. Hi all! Hope all is well.

    Apologies, what's the IBM and VIAC plays. Could not hear on the video…. not sure why.


  25. Also hope those that were playing are still in LQDA…..the position is now positive. I bought all the way down. I see them $6-10. Then I will lighten up.

    TRIL…being bought out by PFE, one could have bought the Nov 15Cs 6 wks ago for 2.7.  Sold the 15Ps for 40c.  So, net 1.3 on the difference and when TRIL gets finally taken over, that is about a 17% ROI.  Not too shabby.

    SRRA data are due next year….hold on tight.


  26. Also, PFE…selling the Dec $40Ps. I think it is free money.


  27. EWZ/Jeff – Ah, from the morning post.  The comment search doesn't find those.  VALE is 20% of EWZ and PBR is another 6% and we've played both of them. The net of the spread was $1.60 and now the Jan $31s are $1.20 so a little late but you can salvage most of the net by rolling them out to maybe the Aug $26 ($5)/30 ($2.90) bull call spreads at $2.10, so investing 0.90 more to widen the spread by $1 at a much lower strike (now in the money).  That's a sensible move and, if you sold the $25 puts – I wouldn't worry about them – yet.  

    CCL/Snow – Another reason I like RCL better – very clean, even before Covid.  Still, I will wait for a lot more data before getting on a ship with 6,000 people for a week.

    Recession/Pstas – Well short-term that's my worry with every consumer-touching stock.  Is it really $10 a slice – that's friggin' insane.  I don't know about you but I almost never see a CAKE without a wait for tables at dinner time.  Someone can afford it.  

    Hey Pharm!  

    IBM we will do tomorrow with INTC and VIAC is adjusting plays we already have – also tomorrow.

    Good idea on TRIL.

    Good play on PFE – more vaccines!  MRNA also cheap again.  


  28. Hi Pharm, are you still positive on KPTI? Thanks. 


  29. Phil / AAPL / Earnings – Key issue is supply chain – with high end chips and MFG shutdowns for Covid – impacted Q4 revenue by $6B,  They indicated that the mfg portions were much better this Quarter, but that SC would impact Q1 by more than 6B.  Additionally All Regions grew Double digits with China up 83%..  Services came in at $18B 25.6% YOY growth….   $68.5B for the for the year and growing at 20% range….  suspect that stores open more are driving this…. additionally paid sups at 745M and increase of 160M from last year.   Blow out Quarter.   Also said next quarter they would come in a record revenue despite supply chin impact for more that 6B projected….    

    My Outlook Fro Q1 

    Rev 120B to 125 B with EPS of 1.9 to 2.0….     for the FY '22 year EPS of about $6/Sh with a YOY growth of 6 to 8 %…    

     

    Apple (NASDAQ:AAPL): FQ4 GAAP EPS of $1.24 in-line.

    Revenue of $83.36B (+28.9% Y/Y) misses by $1.63B.

    Shares -3.7%.

    Press Release

    Products revenue of $65.08B vs. $68.72B consensus

    iPhone revenue of $38.87B vs. $41.60B consensus,

    Mac revenue of $9.18B vs. $9.31B consensus,

    iPad revenue of $8.25B vs. $7.16B  consensus,

    Wearables, home and accessories of $8.79B vs. $9.28B  consensus.

    Service revenue of $18.27B vs. $17.57B consensus.


  30. Well, we’ve been waiting for a chance to buy Apple cheaply again. We’ll see what happens.  


  31. KPTI/Kust….Yes. Still own a bunch of them.