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Still-Merry Monday Markets – 2022 Begins at the Top

Happy 2022!

It's happy 4,785 on the S&P 500 this morning, so I guess we didn't need those hedges but forgive me if I don't dump them just yet – as the year is young.  The dangers are still out there.  In fact, Evergrande is still a thing as trading had to be halted in Hong Kong this morning as the property developer was ordered to demolish 39 buildings in the next 10 days because the building permits were "illegally obtained."

With $197Bn worth of bonds coming due in January for the Property Industry, this is not a good time to shake investor confidence though it is possible the Government did Evergrande a "favor" by giving them an excuse to cancel a project they can no longer afford, building yet another speculative, empty city to rot on the Chinese landscape.  

Real Estate is 29% of China's GDP and Evergrande alone has $300Bn in debt that appears to be in real danger of defaulting and no wonder, since there are now 65M vacant properties in China.  There are only 110M homes in the entire United States!  In China, with 1.3Bn people, it's "only" 20% of the housing market but imagine what the US would look like with 20% vacant homes (it's more than double our rate)?  

Contracted sales for Chinese property developers fell 26% in December and Evergrande's are down 99% from last year – would you buy a pre-construction home from them?  This does not bode well for the bondholders, does it?  

  Citi China developers

These companies need to raise $197Bn this month to avoid defalts on Trillions of Dollars worth of debts and they can't do it at 10%+ rollover rates (due to the increased risk of default) so expect them to float equity and dilute – which will create an upcoming sell-off in the sector.  And the pressure is really on because Chinese New Year is February 1st and that's a week off for the markets so they have very little time to come up with a plan to raise capital of face a major crisis to start off the year.  

The Story of China's Ghost Cities and Its 65 Million Empty HomesWe began 2021 shorting the China ETF (using FXP) due to property concerns and those paid off early with FXI now down at $36.50, from a high of $53.74 in February, so down about 1/3 for the year.  In China, the Communist Government accumulates sales revenues worth billions of dollars from land sales and the earnings of the property market, and the reason behind this real estate-driven economy lies in the country’s constitution. According to the Chinese constitution, all the land in China is owned by the state, so when developers want to build on a piece of land, they have to lease it from the government, often by participating in local land auctions.   

Evergrande’s model worked as long as it could keep building and selling at an inexorable rate. The company would borrow to buy land, get homeowners to buy off the plans, and then borrow again to start another project. Behind the rapid growth, a big interest bill was mounting. By July 2020, the company's liabilities had reached 86 percent of all of its assets and the group turned increasingly to short-term lending with high interest rates. 

Now it's like that old joke: "If you owe the bank, $300,000 and can't pay it, you are screwed but if you owe the bank $300Bn and can't pay it – the bank is screwed" or, in this case, the Chinese economy.  

In the US this week, we'll have Non-Farm Payrolls on Friday and plenty of data all week, kicking off with PMI and Construction Spending this morning, ISM tomorrow, PMI (again) and Motor Vehicle Sales on Wednesday along with the Fed Minutes.  Thursday is ISM Services and Factory Orders and Friday, in addition to NFP, we have 3 Fed speakers – which makes me think the NFP report is going to be disappointing and they are lined up to spin it.

And, guess what?  It's that time of year again:

Image

 


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  1. Good Morning!

     

    I'm ready for better days ahead….  :)


  2. 1020- I second that. Sun's up but -5 here. You'd think all the pension funds would be holding things up for awhile, at least.



  3. Love it-TSLA was up over a 100 points on "record delivery's." Does anyone realize that Uber and Lyft are buying them and then charging the drivers for them? Now down-boom. People are truly amazing. I'm shorting Uber and Lyft. I wonder if they will ever post a profit. No mention of the recall? Gee, it's only a small one!


  4. FYI regarding JD from last week's PSW recs,

    JD has been one of my favorites and has paid for a few lunches, but…

    (1) In checking with Fidelity, if JD were to be de-listed here, then shares could be converted to HK shares for a small fee ($20 + .05/sh).

    (2) However, that's when the fun begins. There is a list of prohibited stocks (defense, security, disclosure concerns, etc ) on the HK exchange that our govt has said Americans must divest themselves of by June, 2022. JD (nor Bidu) is not currently on that list, but should they be black-listed for any reason, US stockholders would have to exit by June. One can easily imagine the effect of being placed on that list would have on JD's stock price.




  5. VIAC catching a bid today



  6. Good morning!

    Crazy up and down action to start the day:

       

    Won't get back in the swing of things until later in the week.

    TSLA/Pirate – There's a guy who always finds a way to win.  $1.2Tn at $1,170.  TM is $250Bn and F and GM are $90Bn each.  The fact that they made 928,000 cars (missing 1M goal by a mile) and had to recall 500,000 of them doesn't matter at all.  And yes, big mutual back-scratching arrangement with Uber and Lyft.  Uber isn't actually buying anything, Hertz is buying 100,000 TSALs (we've known that for months) and Uber drivers can rent them for as little as $334/week (they have to have good ratings – which is like Black Mirror – and drive a certain amount of Uber trips).  

    So, like most things involving Musk, it's a lot of hype and double-counting the same sale by announcing different aspects of it over time.  Apparently, the $334/week includes insurance and if we figure a TSLA driver can make $100/day – then they could net $300 in a good week, so a lot of people will probably participate.  Also, no gas cost.   Apparently, the average Uber driver in Florida makes $28,499, about $500/week so you need to be on the motivated end of the spectrum but it's not a terrible overall idea.   HTZ is essentially acting as a finance company and I'm sure $1,200/month makes them a very nice profit on the cars – they are essentially giving a fleet discount to Uber and Lyft for rentals.  

    JD/8800 – That's the risk with all those things now and that's why they are trading so far below value.  

    VIAC/Stock – A pulse?

    Cartoon of the Day: "It's (Not) Alive"












  7. REITs selling off hard today. 


  8. The invention of the year has already been won! 

    Jackie just sent me a picture from her flight – so cool!  

    Wow, glad we didn't bail on the /ES shorts!  

    Back over $5K.

    Still a loss vs Friday's close but happy to be back. 


  9. Happy New Year everyone!

    Phil – I have a 15 (70-90) 2023 BCS on MU with 10 short $60 2023 Puts, and sold short term calls against it which all expired fine. After all sales/expiries, position net is $6K, it is currently about $15K. Does it make sense to sell more short term (strike 100 or 105 calls) against this? Feb $100 Calls are $3, as are March 105s. Just 3 short term calls (1/5th of the long BCS). Or wait for the current uptrend to continue before selling any more? 


  10. I'm confused with the 5G standoff between FAA and T/VZ.  The FAA has known about C band spectrum used by 5G For over a year now so why start panicking just before the launch?  Feels very strategic.


  11. jeddah62- I read it interferes with airline and airport signals, so maybe it was just discovered. Safety concern?


  12. MU/Rn – I don't see why not, you want the protection for your $30,000 spread, I'd sel. 1/3 and 1/3 more if 90 fails bit I'd sell 5 April $100s for $6 as that's $3,000, which is 20% of the $15,000 you are in for at the moment and then, if $90 fails, you sell $3,000 more and then you've greatly reduced your risk and $6,000 is plenty of money to roll the long calls lower (assuming you want to stick t out) and it's the entire net of the spread so you can't lose going down and flat or up are good too – that's how a trade should be set up. 

    Keep in mind if they pop $20 to $115, the short $100 calls you are selling for $6 will be $15 and then you can roll them to 2x something else for $6 and, by then your spread would be deep in the money so you could cash it and buy a bigger, higher spread to cover the short calls.  For example, the 2024 $95s are $23 and the $115s are $16, so net $7 and you could buy 30 of those for $21,000 and your basis is net $3,000 if you sell $3,000 worth of calls and the 2023 $50/70 spread ($20 lower than current) is $48/31 so $17 x 15 ($25,500) is what you'd have to work with and $21,000 for the new position (maybe a bit more) means you'd be taking $4,500 off the table so net $1,500 credit and you have 30 of the 2024 $95/115 bull call spreads ($60,000) potential and 10 short maybe July $105s all for a net credit of $1,500.  When your fallback position sounds like something you want to buy – it's a good trade.  

    5G/Jeddah – They still don't think regular phones are safe.  The FAA is a bit like Anti-vaxxers – any shred of evidence they latch on to and error on the side of caution to the extreme.  Of course, that is kind of their job and people would really be pissed at them if planes fell out of the sky but I really don't understand why we aren't able to do definitive studies on these things.  T & VZ, by the way are NOT deploying 5G around airports until the FAA is satisfied but they refuse to delay the entire national rollout for "more study".   

    The exclusion zone AT&T and Verizon propose is currently in use in France, the carriers said, "with slight adaption" reflecting "modest technical differences in how C-band is being deployed."

    "The laws of physics are the same in the United States and France," the CEOs wrote. "If U.S. airlines are permitted to operate flights every day in France, then the same operating conditions should allow them to do so in the United States."

    I love that!  

    Don't forget the same Government SOLD the phone companies the spectrum for $80Bn and then they spent about $200Bn more setting up towers, etc and now the Government wants them to wait to collect the revenues?  Of course the carriers are saying BS!  

    40 countries have 5G so far, no incidents.  


  13. 4G vs. 5G: How New Wireless Technology Will Change Everything

    5G Vs 4G – How Mobile Networks Are Changing Forever - ITChronicles

    Sounds like replacing phone lines with broadband.  You won't be able to take it away from people once they get used to it.  Saves energy too!

    I'm liking our T positions!

    I mean, really – WTF were people selling these things for?  

    T/Doro – Well the uncertainty makes them a bad Trade of the Year candidate though I'll be happy to own both companies post-split.  Messy profits are still profits.  

    Submitted on 2021/11/30 at 11:23 am

    T/Jeddah – Baby with the bathwater today.  Just caught up in index selling, despite already being sold to death.

    Submitted on 2021/12/15 at 10:51 am

    T/Seer – I'm sure most of the downward pressure is dividend funds bailing but, at $22, the dividend is $2.08 so about 10%, which is silly.  If they cut it in half, it's still 5%.  The spin-off will be a much bigger deal, we'll see how that squares up.

    Submitted on 2021/12/20 at 2:17 pm

    T/Yodi – I think $22 may have finally found a bottom.

    "When I get older they think I'm a fool

    The teacher told me I should stay after school

    She caught me pounding on the desk with my hands

    But my licks was so hot


    I made the teacher want to dance" – Todd Rundgren

    Don't forget our list of 10 future table-bangers"

    Fabulous Thursday – Ending the Year on Top


  14. Exactly Phil, FCC sells the spectrum, FAA knows it's coming and now they balk. My understanding is these are older altimeters too that probably will need to be replaced. More costs the airlines want to avoid


  15. That's like forcing us to stick with cobblestones because some people still have horses and buggies…


  16. …and T will definitely benefit from 5G with looming Web 3.0 (AR,VR,Metaverse) so liking it too


  17. So will AAPL, as if they need help.  

    Speaking of not needing help:

    Boy were we too conservative.

    INTC is just starting to make their move:

    MO was another TotY runner-up, they made a move.

    As did WBA:

    4 for 4 on our Trade of the Year and the runners up!

    Good way to start


  18. Apple has become the world’s first $3 trillion company


  19. Right back where we started from this morning.

       



  20. How Bad Are Plastics, Really?



  21. Happy 2022. Whole-year pic:

    VIAC, VZ, T going into the portfolio tomorrow. Absolutely LOVE these as 2022 plays of the year (or just good plays). I like AMD. I like renewables + decarb. KRBN for now. I recall mentioning in 2012, 2013(?) that TSLA wasn't a car or battery or solar company (or whatever), but one of the only plays in the new carbon economy space. I was right. That play's played out now unfortunately, but there's other to fill this space now and do a few 100% journeys over the next 2-5 years. Gotta find them though.

    Crypto dies or goes to $5T (now $2.2T). Who knows and who cares? It's just money. Actually it's an entire new asset class. Is said asset class worth at least one apple? Probably. Stupid shit like Shiba's and Bored Ape NFT's aside, there's some interesting stuff going on in this space. Does crypto finally condense into decarbonization asset-allocation? Maybe, maybe not. If not 2022, it'll be 2023. Greenland isn't going to re-freeze itself by itself. We better get something done here. 

    Is America going down the fascist dictator path? Probably. Why get hot and bothered? Even 85-year old millionaire investors I know sing the "trump's re-election was stolen" song. This isn't going away. They hate (the myth called) America. Deal with it. Imaginary lines on maps are evaporating by the way. The real (meaning, the new imaginary) lines are now perceived culture slights and the choice of source of your "trusted news." Those know no geographical boundaries which are now irrelevant. The climate emergency and peer-currency are converging to re-write how we organize our social myths. Are you investing in this reality or are you playing in some alternate reality space where "corporations" and "earnings" matter? Prepare to lose, if so.

    Oh, remember to scrub any of your pro-vaxx comments on social media: Dear Leader and his minions may put on the brown shirts and purge such "thought traitors" soon.


  22. biodieselchris/ what about ABXXF for the decarb space


  23. I dunno, I'm off the pinks this year. A new year's resolution…