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Monday Meltdown – Asia’s Economy Tanks, Oblivious US Indexes back to their Highs

Disney Alice in Wonderland – Limited Edition Canvas | Thomas Kinkade StudiosIt's fun to ignore reality.

Or to imagine that the World is more fun than it is with less Covid and less Global Warming and less Inflation and better GDPs, etc.  Reality, however, can be a harsh mistress and ignorning reality can be harsher still – eventually.  But not this morning as our indexes are back around their record highs – even as China's Industrial Production coming in at 3% – the worst since Q2 of 2020 while their PMI is also collapsing – worst since February of 2020 – when the country was first shut down.

An energy crunch over September and October coupled with elevated cost pressures is squeezing Corporate Profits and hitting Factory Output in the World's 2nd-largest economy, yet over here we act like nothing that happens in China could possibly affect the US markets or our economy.  

Falling real-estate prices and credit-market turmoil for heavily indebted developers means fixed asset investment in the first 10 months of the year is expected to have slowed to 6.2% from 7.3% previously.  Chinese economists warn that the downturn in real estate — which accounts for up to 25% of output — could hurt the wider recovery.  Goldman Sachs (GS) and others warn China could see sub-5% growth next year. 

Japan releases figures on Monday that are expected to show the recovery of the world’s third-largest economy slipping into reverse after hitting a summer virus wave and global supply-side glitches.  A particularly bad result could fuel even more stimulus from Prime Minister Fumio Kishida later in the week, when he decides on a package of economic measures. Trade and inflation numbers also come out from Japan this week. 

JAPAN GDP DETAILS:
  • Private consumption fell at an annualized pace of 4.5% from the previous quarter
  • Capital spending dropped 14.4%
  • Government spending rose 4.7%
  • Exports fell 8.3%, but a bigger fall in imports meant trade added fractionally to growth overall

The economy has now shrunk in five of the past eight quarters. Excluding the pandemic lows, real GDP is now at its smallest size since late 2014. 

The World's 8th-largest economy is also declining rapidly – something else to ignore:

Retail sales are the headline for U.S. economic data releases in the coming week. Economists project a solid advance in the value of purchases in October, indicating a stronger pace of household spending after a soft third quarter.  The week’s reports also include data on industrial production and housing starts in October, and readings on November manufacturing activity in several Federal Reserve districts.  By Thanksgiving (a week from Thursday), we should also know if Powell is going to keep his job or not.  

I'm betting not since Warren has been quiet recently and Biden is getting killed in the polls, mostly over the inflation that Powell refuses to see but bringing in a Fed Chair who raises rates, heedless of the dangers that that may bring – is also a recipe for disaster.  We have 14 Fed speaches this week while we mull that over:

So yes, we are going to short the S&P Futures (/ES) at 4,700 again as all this pre-market joy may reverse once volume comes in at the open.  There's no reason to be this giddy and over 80% of the S&P 500 have already reported their earnings – so the boosts won't be coming from there either.  There are still many, many earnings reports coming in, however:

Image

Here's a little wrap-up of the weekend news:

Wall Street Reaches Record Highs As Main Street Sentiment Hits 11-Year-Lows

Goldman Quadruples-Down On Epic Year-End Meltup: "Expect $15 Billion In Demand Every Day To Close The Year"

China’s Slowdown Poses Threat for Global Recovery: Eco Week

COP26 Finally Set Rules on Carbon Markets. What Does It Mean?

Deal Sealed After Late Pushback by India and China: COP26 Update.

Ships Keep Coming, Pushing U.S. Port Logjam and Waits to Records

Clock Just Hours From Midnight For Overwhelmed California Ports

Workers quit jobs in record numbers as consumer sentiment hits 10-year low

A Record 4.4 Million Americans Quit Their Jobs in September

U.S. Strikes Show Workers Are ‘Fed Up,’ Labor Leader Says

More Bad News For Biden As Real Wages Plunge

US Food Banks Struggle To Feed Hungry Amid 'Perfect Storm' Of Food Inflation

Putin Masses Troops to Tell NATO to Stay Out of Ukraine

China’s Wildlife Is a Pandemic ‘Waiting to Happen,’ Study Finds

 

Big Short’s Michael Burry Calls Out the SEC and Fed Over Market Risks

This chart could force bubble doubters to rethink matters

Chief Strategist: Markets Are About To Be Hit With Three Shocks

Cracks Appear in World’s Biggest Bond Market as Fed Pulls Back.

Charting Global Economy: Inflation Shows Few Signs of Cooling

Summers Signals Inflation Now ‘Entrenching’ as Demand Runs Hot

Consumer Anger About Inflation Can Make a 1970s Rerun Real

Inflation in the grocery aisles: Prices of roast beef, eggs and bacon are up nearly 30% since last October.

‘It feels like it’s never-ending’: Prolonged exposure to high inflation leaves people with anxiety — and weird shopping habits

Oil Was Almost $150 the Last Time U.S. Gasoline Cost This Much

Returning Renters Find Crazy Post-Covid Leasing Market.

"Its Entirely Feasible That Herd Immunity Has Been Reached In The Current Environment"

Austria "Just Days Away" From Unleashing Lockdown On The "Shameful" Unvaccinated

5 infrastructure stocks to buy now that Biden’s bill has been passed, according to Jefferies.

Opinion: 10 recommended stocks if you think value will beat growth as inflation surges.

 


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  1. Just an other comment from an American fellow man about WBA

    I don’t like WBA, so much concentration in cities , many are affected by city policies (see SF for extreme situation)

    their customer service is very poor in the stores I go into .. and mostly I have quit going, most recent was for my wife to get her covid update.. she filled everything out on line .. we get to the store, they can’t access any of this, so our 11:20 appt was more like 12:00 .. they face a lot of pressure on meds and that is about what keeps them afloat .. again in big cities, who wants to go to a pharmacy if they don’t have to.. use mail


  2. Good Morning.


  3. Good morning!

    WBA/Yodi – You have Boots in Europe – have people stopped going?  I guess that guy doesn't like them but he still went there to get his shot.  Revenues and profits are back to 2019 levels, heading towards $4Bn per year and you can buy the whole company for $43Bn.  Do you know who you buy drugs on-line from in the US?  WBA!  The big pharmacies are also the big on-line sellers.

    Daily Update: January 6, 2021 | S&P Global

    And look how crazy this is:

    Are they going to have huge growth?  No.  Can we make 300% on a spread that's better than 80% likely to pay off?  Yes.  So I like them.  

    You can sell 2024 $40 puts for $5 and that's net $35, which is $15 (30%) below the current price and would drop the PE down around 7 – so I consider that free money but, for a spread, I'd be more aggressive and sell the $50 puts:

    • Sell 5 WBA 2024 $50 puts for $10 ($5,000) 
    • Buy 10 WBA 2024 $35 calls for $15.60 ($15,600)
    • Sell 10 WBA 2024 $45 calls for $9.50 ($9,500) 

    That's net $1,100 on the $10,000 spread that's 100% in the money so start so all WBA has to do is not go lower and you make $8,900 (809%) in two years and that should cover your deductibles quite nicely.  Break-even is way down at $41, so WBA can drop 20% before you are out of pocket and worst case is owning 500 shares at $41.10 but then you can roll to lower strikes further out.  

    So, you can keep hating on WBA all you want, Yodi, but I'm going to keep pointing out what an excellent value play they are.  


  4. https://seekingalpha.com/article/4453363-walgreens-dont-buy-into-the-bear-thesis

    Walgreens (WBA) has certainly earned its title as one of the dogs of the DOW, given its underperformance and high dividend yield compared to its peers in the index. It’s easy to forget, however, that this stock was actually a Wall Street favorite just 4 years ago, with a share price in the mid-$80s and a healthy PE valuation.

    While Walgreens has its share of headwinds, I believe the doom and gloom has been priced in, and see reasons to be optimistic about its future. In this article, I explore what makes WBA a worthy Buy in today’s expensive market for potentially healthy long-term returns, so let’s get started.

    Why WBA Is A Buy

    Walgreens Boots Alliance is a global leader in retail pharmacy with a 120-year history in this space. It has more than 21,000 stores in all 50 states and 11 countries, and was included in the Fortune 2021 list of the World’s Most Admired Companies. At present, WBA has the largest retail pharmacy market share in the U.S. at around 20%, giving it significant cost advantages and scale, and in addition, has a 26% stake in the drug distribution giant, AmerisourceBergen (ABC).

     

    Starting with the negatives, it’s no secret that Walgreens has come under pressure in recent years, despite its scale advantages over smaller pharmacy chains. This is reflected by the decline in gross margins from just under 30% back in 2013 to 20% over the trailing 12 months. This was a result of ongoing reimbursement pressures as it relates to generic drugs and the growth in negotiating leverage that PBMs (pharmacy benefit managers) have over retail pharmacies.

    Plus, the overhang of e-commerce juggernaut Amazon (AMZN) entering into the pharmacy space as well as the potential for an increase to the corporate tax rate only added fuel to the fire. These are the primary reasons for why Walgreens’ price has fallen substantially in recent years, and trades at a forward PE of just 10.7.

    While these are legitimate reasons to be concerned, I do see reasons to be optimistic around the future for WBA. For one thing, the recent divesture of the Alliance Healthcare business (pharmaceutical distribution in Europe) to AmerisourceBergen enables management to be more focused around WBA’s core pharmacy business, while providing capital to fund business transformation efforts and pay down debt.

    Walgreens has also proved the need for physical retail locations, considering that it’s administered over 9 million COVID tests, and over 25 million vaccines to date, with 95% of its locations administering shots. Plus, WBA’s revenue solidly bounced back during the third quarter (ended May ’21) with a 12% YoY increase, landing at $34 billion, which beat expectations by $560 million. It’s worth noting that WBA’s Q3’21 revenue now sits above the $29.9 billion in Q4’19 (pre-pandemic). Free cash flow also improved by 36% to $3.3 billion, and management is guiding for 10% EPS growth this year.

    (Source: Q3’21 Investor Presentation)

    Looking forward, I see a company in motion, as management aims to deliver $2 billion in annual cost savings by FY 2022. One of the ways to achieve this is by modernizing and automating its pharmacies, as highlighted by WBA’s investment in iARx, which aims to bring together pharmacy automation with enhanced workflow capabilities.

     

    In addition, WBA is ramping up personalized offerings through membership of myWalgreens, which saw 34% YoY membership growth. This helps to enhance WBA’s omnichannel capabilities, with 6 million curbside, drive-through, and last mile delivery orders completed since program inception. Lastly, the company is making good progress in its business transformation efforts. This is reflected by positive market reception and accelerated rollout of its VillageMD offering along with expansion of its testing and diagnostics business inside stores, as noted by management during its recent conference call:

     

    We are also accelerating our rollout plans with VillageMD following continued positive patient response. We have already opened 46 sites, and we have identified a further 35 locations to be opened by the end of this calendar year. This will bring the number of co-located sites to approximately 80 by the end of this calendar year.

    In addition to these physical co-locations, we formed an integrated virtual healthcare collaboration with VillageMD in an additional nine Walgreens locations. This will give patients access to the same expanded pharmacy services that are available at the co-locations. Finally, building on our success in COVID testing, we are developing our testing and diagnostics business to provide a wider range of solutions for our customers going forward.

    Balance Sheet and Dividends

    Walgreens maintains a prudently managed balance sheet, with $1.35 billion cash on hand, and a BBB credit rating from S&P. It repaid $2.8 billion worth of long-term debt at the end of FY 2020, and currently has a net debt to TTM EBITDA ratio of 3.2x. I would expect for the leverage ratio to trend down, as we move away from the pandemic months of last year.

    Meanwhile, WBA pays a relatively high 3.7% dividend yield with a low payout ratio of 39.7%. Let’s also not forget that WBA is a dividend aristocrat, with 46 years of consecutive annual raises.

    The low payout ratio enables the use of retained capital to further business transformation efforts currently underway. As seen below, WBA’s dividend yield now sits at the highest level outside of the pandemic timeframe.

    Note: The 3.6% yield is based on TTM. Forward yield is 3.7%.


  5. Oil failing $80

        


  6. Indexes selling off at the open as expected but nothing dramatic.  

       


  7. Morning. Phil, thoughts on Cannabis which is back on the radar. Something like MJ 24's $12-20 BCS for $2.25 with $12 P for $2.75


  8. And maybe sell CRON 2023 $5 P for $1.5 for cheaper put sale


  9. Phil – for a new position in RWLK, would you suggest the same ratios as before (10,000 shares, 50 short puts and 75 short calls at strike $2.5), but for the April expiry? Or just the shares and short puts, and wait on the calls? For a long term hold, does it make sense to sell covered calls giving 15-20 cents per contract after 6 months?


  10. Phil WBA Just coppied what I read. Just .18 down again for the day.

    But here some interesting news from a German financial TV Biontec, we discussed the other day, paid more taxes for the year 2020 then all the rest of all the companies operating in the Mainzer are together. Mainz is the city from where Biontec is stationed.


  11. In the STP, let's just take our QCOM money and run as we never intended it to be a long-term play.  We will let AVGO ride as we're losing there – for the moment:

    QCOM Short Put 2024 19-JAN 100.00 PUT [QCOM @ $168.87 $3.93] -5 10/18/2021 (795) $-5,055 $10.11 $-3.14 $-10.11     $6.98 - $1,568 31.0% $-3,488
    QCOM Long Call 2024 19-JAN 130.00 CALL [QCOM @ $168.87 $3.93] 5 10/18/2021 (795) $10,425 $20.85 $32.18     $53.03 $4.03 $16,088 154.3% $26,513
    AVGO Short Call 2022 21-JAN 500.00 CALL [AVGO @ $560.48 $-2.74] -2 10/18/2021 (67) $-5,020 $25.10 $42.00 $-25.10     $67.10 $-1.98 $-8,400 -167.3% $-13,420
    AVGO Long Put 2022 18-MAR 300.00 PUT [AVGO @ $560.48 $-2.74] 5 10/21/2021 (123) $950 $1.90 $-0.88     $1.03 - $-438 -46.1% $513

    It was a paired bet so a winner but we can do better by rolling the short calls along until they expire worthless (hopefully).  

    We are down $42 on the short AVGO Jan $500 calls but the 2023 $620 calls are $42 so, without even doing a 2x roll, AVGO would have to be 20% undervalued to hurt us further.  The $700 calls are $21 for a 2x rolls so, unless I really think AVGO will gain 40% more in the next 12 months – it makes a lot more sense to roll the short calls than take the loss.

    MJ/Jeddah – Well it certainly can pop if sentiment changes but that ETF has some incredible decay over time.   MO owns 42% of CRON and MO is an $82Bn Blue Chip trading at 9x earnings ($8.5Bn) while CRON is a $2.3Bn company still losing $200M/year.  Clearly I'd rather stick with MO, who are likely to just buy the rest of CRON eventually anyway.  

    We already have MO in the LTP at about the same price we bought it for in June:

    MO Long Call 2023 20-JAN 45.00 CALL [MO @ $45.23 $0.31] 30 6/1/2021 (431) $18,300 $6.10 $-2.05 $6.10     $4.05 $0.15 $-6,150 -33.6% $12,150
    MO Short Call 2023 20-JAN 55.00 CALL [MO @ $45.23 $0.31] -30 6/1/2021 (431) $-7,500 $2.50 $-1.26     $1.24 $-0.02 $3,780 50.4% $-3,720
    MO Short Put 2023 20-JAN 45.00 PUT [MO @ $45.23 $0.31] -20 6/1/2021 (431) $-10,000 $5.00 $1.78     $6.78 - $-3,550 -35.5% $-13,550

    I feel a lot better putting my money there than CRON or MJ or any of the others.  If they legalize pot nationally – who has a better growing and distribution network along with brand recognition than MO?  

    Amazon.com: joe camel

    For 2024, we can take advantage of the dip like this:

    • Sell 10 MO 2024 $40 puts for $6.50 ($6,500)
    • Buy 20 MO 2024 $37.50 calls for $10.20 ($20,400)
    • Sell 20 MO 2024 $50 calls for $4.20 ($8,200) 

    That's net $5,700 on the $25,000 spread so $19,300 (338%) upside potential at $50 when we're starting at $45 is getting close to a trade of the year candidate if we were more sure of the catalyst.  But that's the point – if the MJ bill doesn't pass, who would you rather be stuck with in your portfolio?  MO or MJ or CRON?  

    RWLK/RN – Yes, not much change from when we came in overall.  They could have a setback as easily as they have positive news, so I wouldn't get too aggressive.  My plan with the 3/4 cover is to be able to let 1/4 run if it spikes up sooner than we think – that's all.

    BNTX/Yodi – Another good one. 

    Still why go with PFE's junior partner?  Same thing for me – I would rather be in the diversified blue chip.


  12. yodi-same thing happened to me with WBA. Think overall they are pretty good, but appt was for 11AM and I had to wait an hour!. Tried to do everything ahead also. I just go in and do my shopping. Truly I find it faster and easier. Phil is right on one part-they are half the share cost of CVs which I do not like. Now that Costco is open closer to us I will be using them more however, I like the variety and quick check out at WBA. And the personnel are helpful and friendly. You get points on purchases also that changes into credit on purchases. I have made money on them in the past trades. Just another opinion.

     

     

     

     

     

     

     

     

     

     

     

     

    cvs which I do



  13. The Bad Guys Are Winning


  14. Inflation :)



  15. Countries By Life Expectancy


  16. Another thing to consider is that CVS bought Aetna for around $70BB. I'm not sure how that is going, but my firm's health benefits are with Aetna & they sure steer you into CVS for prescriptions!


  17. Phil / AVGO – is this an official roll on the short AVGO position?


  18. CVS/Randers – Yes, that Aetna move is very effective to steer business to their "preferred partner".  

    AVGO/Batman – Not yet, you never know when you'll get a nice correction.  

    Image


  19. I’d like to share some observations about America and Covid after a dinner in Paris on my first International business trip since the Pandemic began.

    Tragically, Discussing Covid in America is primarily a political discussion. It is certainly not a medical one. Overwhelmingly, that reality is the fault of three people. Trump, Murdoch and Zuckerberg.

    Trump is directly responsible for the deaths of hundreds of thousands of Americans because of his insanity, narcissism, incompetence, malice and selfishness.

    Murdoch monetized the insanity by stepping on the gas and building a community of anger fueled by conspiracy, rage, hate, racial animus, nativism, jingoism, misinformation, venal stupidity and contempt for American ideals of equality, fairness, justice and democracy.

    Zuckerberg built a mass surveillance company that imprisons victims (Americans) in an information archipelago guarded by malevolent algorithms that turn Trump’s insanity and Murdoch’s nihilism into a dogma that is tearing the country apart when it should be coming together in the common cause of defeating a terrible and shared common enemy, a disease that can take any of us or the people we love at any time.

    The Covid discussion in France feels profoundly different than the American one. Yes, there is resistance, anger and disapproval around Government actions and there are plenty of loud anti vaxxers in France, but they seem to be contained on the fringe in a place that would have been recognizable to most Americans not so long ago.

    What seems most jarringly different is the frame of the conversations forged by the absence of two of the people above, Trump and Murdoch. France has its Trump’s but what it doesn’t have is a Murdoch. In fact, there are only three societies that do, American, UK and Australian. He has been a pancreatic cancer on democracy, pluralism and decency in all three. In France because there is no Murdoch, the conversation around Covid seems warped to this American, who is primed to experience it from a perspective wrought by Murdoch’s ceaseless cynicism and nihilism.

    Tonight there was no talk about any of the insanity we are drowning in in the States. The conversation was about loss and death with one person sharing a story about his best friend who lost both parents within 30 days. All of humanity is sharing this moment of sadness, death and loss together.

    Covid has come for us all and taken many. In France, absent a Murdoch and his empire of lies and division, that seems a little clearer and that is very refreshing to this American in Paris. – Steve Schmidt


  20. Steve nails it….


  21. MRNA/Phil  Are you ready to consider a position in MRNA yet?

    - 10 MRNA '24 $200 p ($35) 



  22. MRNA/Wing – You mean like this?

    MRNA Short Put 2024 19-JAN 200.00 PUT [MRNA @ $230.74 $-0.45] -5 10/5/2021 (795) $-12,500 $25.00 $20.00 $-25.00     $45.00 - $-10,000 -80.0% $-22,500

    Yes, in the LTP I would be happy to press that to 10 – I have faith in $200.


  23. Wow, oil longs worked again ($80)!  

    There's certainly no conviction here so taking the money and running.  $81 is our weak bounce so it's simply failing again and even weaker than Friday so we'll be more careful about a re-entry next time (if there is one):

    /RB much more pumped up:

    Oil Was Almost $150 the Last Time U.S. Gasoline Cost This Much

    Keep that in mind!


  24. /ES shorts doing well but those I have more conviction with.  

    Same 2 shorts that remained from last week as we never hit 4,700 to add back 2 more (silly of me, I should have added 1 when we were so close).

    Still, as we predicted in the morning – it was just pre-market BS and, when you see pre-market BS – it's a strong sign that the Banksters are trying to trick the dumb money into taking their shares so they can dump out.


  25. MRNA/Phil Guess that means you're not ready to take a long positions yet ..


  26. MRNA…personally, I would stay away. That train left the station, and once this pandemic is under 'control', what do they have left?  The technology has proved nothing yet besides for COVID, and competition will heat up.

    On that note, um…..  LQDA… zoom zoom zoom. 

    There is still time to risk TRIL.  Dec 15Ps are 20c. That's net $17.75ish on the stock, so $75 profit on $1850, 4%.  Amortized over 12 mo…still not too shabby.  Risk is if it does not close, the stock will plummet back to 10.


  27. MRNA/Wing – They are in the middle of a patent lawsuit that may impact their Covid earnings which, as Pharm notes, are all of them.  I disagree with Pharm however in that Covid is a "proof of concept" for their techniques and I expect them to put their cash pile to great use going forward.  Still, that means I don't mind being forced to own them for around $150 if assigned the short puts (and will probably roll lower) but I'm not ready to spend more money betting they'll be at $250 in two years yet.


  28. Rittenhouse verdict is out.  It's not going to be a good night in Milwaukee/Chicago.