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Troubling Tuesday – US Covid Cases Hit 1M New Cases in a Single Day

1,017,376.

That is the official count of Covid 19 infections yesterday, almost double the record of 585,013 set on Thursday.  That's NOT EVEN inclucing data from 6 states, which took the holiday off on Monday and will catch up reporting today – so tomorrow is likely to be an even more disturbing daily number than today though it's hard to be more disturbing than 1 in 300 of us catching Covid in a single day.  There are 365 days in a year – you WILL get your turn!  Now we will see if I was right on Wednesday, when I said:

Can the markets keep ignoring this surge in cases?  Certainly not if we're talking 1M cases per day next week.  Even if Omicron were as mild as the flu – having 7M people per week get sick would be damaging to the economy.  At the moment, "THEY" keep pointing out that hospitalizations and deaths are not maching the record highs – but that's because those are LAGGING indicators that FOLLOW the infections.  Yes, that's very obvious but, unfortunately, you have to actually say these things out loud to cut through the BS that's pumped out by the Corporate Media.

The "bright side" of Omicron is supposed to be less hospitalizations…  Well, as we know, hospitalizations are a lagging indicator and look at Washington DC, which was the first place to get hit hard – hospitalizations are now 200% over their past peak with infections up 500% so yes, less hospitalizations per infection but we are still being ovewhelmed by the total number of infections.  

So far, the market is HAPPY about the news as it makes it more likely the stimulus will pass and it makes it less likely the Fed will be hiking any time soon.  That means even more inflation – including inflated stock prices – can still be in our future – despite all the death and disease (less people to divide up the winnings with!).  

So far, the market is being completely unrealistic – still hoveing around the highs.  Mark Zandi, Chief Economist at Moody’s Analytics, downgraded his first-quarter U.S. gross domestic product forecast to 2.2% growth from 5.2% as he “can see the economic damage mounting going into the first quarter.”  That's a more than 50% cut in GDP forecast, folks!

Zandi pointed to softer spending on travel and cancellations of sporting events and Broadway shows due to the disruptive Covid-19 outbreak.  “It feels like a very similar dynamic as when Delta hit,” Mr. Zandi said, referring to the Delta variant of Covid-19 that gripped the U.S. in the summer. 

Credit- and debit-card data from JPMorgan Chase indicate that spending in services-related categories such as airlines and restaurants remained depressed last week. Now, the surging Omicron variant is “going to change people’s behavior at the margin” and crimp demand for the spending on services that makes up a large slice of economic growth as people stay home, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.  Pantheon Macroeconomics recently cut its forecast for U.S. growth to 3% annualized in the first quarter of 2022 from 5%.

For the week ended Dec. 26th, the number of seated diners in U.S. restaurants was down 27% from 2019 levels, the widest gap since April, according to data from OpenTable.  In-store spending at retailers and restaurants also fell in late November and early December. For the week ended Nov. 30, spending was down 5.3% from the previous week. For the week ended Dec. 7, it was down 5.6% before rising 3.4% in the week ended Dec. 14, according to payment-card spending data tabulated by the Commerce Department.  Have things gotten better since then or worse?

We are reaping what we have sown by pretending everything was fine over the holidays, allowing far too many gatherings to take place even with statistics that show the average Omicron victim infects 10 other people.  Even with all their vaccines, testing and restrictions, Hong Kong is taking more drastic measures as even they are suffering from a dramatic uptick in Covid cases.    

In mainland China, Zhengzhou became the second major city in Henan province to impose a partial lockdown this week. Eurasia Group warned that China’s zero-Covid policy will this year “fail to contain infections, leading to larger outbreaks, requiring in turn more severe lockdowns.”  As I mentioned yesterday, China's economy is already in trouble - eventually you find the straw that breaks the camel's back…

The Chinese city of Xi'an has been in lockdown for the past two weeks and shortages of food and medical care have worsened in the past 12 days since officials sealed off the city of 13 million people to stymie a flareup that has already led to more than 1,600 infections – a shocking number for China. More posts are starting to emerge on Chinese social media criticizing the government’s poor management and complaining that access to food is extremely limited.

Like the rest of the World, China now has to decide whether or not to cancel New Year's, which is February 1st.  There's a week-long national holiday and it's like our Christmas/New Year's for shopping and travel – cancelling it would be an economic disaster but allowing it to go on could become a national health crisis.  Interesting times.  

Can the markets continue to "ignore and soar" while this is going on across the globe?  There is a bright side to everyone catching the virus this winter – herd immunity.  It is a real thing and a mild version of the virus may just get us to where we need to be a bit faster.  But, that's an experiment in progress and WISHING for a positive outcome does not make it so.  Meanwhile, the damage we fact in getting to herd immunity in Q1 is going to be very real indeed. 

Oil (/CL) Futures hit our shorting spot at $77 this morning, with the OPEC meeting happening today.  Omicron may stop OPEC from increasing production by 400,000 barrels/day, as planned, but $77 on /CL is $80 on Brent (/BZ) and that is simply not a sustainable level for Brent so I do like the short play here in the Futures.

We will see how the indexes hold up as the volume returns this week.  It takes a while for traders to get out of vaction mode and now we'll see how much reality they are willing to take as they come back to rising Covid cases and declining GDP estimates.

 


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  1. Good Morning!


  2. Think happy thoughts…. 

    https://www.youtube.com/watch?v=X_-q9xeOgG4



  3. Happy New Year PSW! 

    So, whilst XBI and the biotech ETFs underperformed, a few shining companies did shine (TRIL; ARNA with buyouts from PFE (another pick)). I also want to point out that LQDA was also noted to the board and DD all the way to about 2.70ish. Now, a double. 

    SRRA is going to release data on their lead drug, momelotinib, in February 2022.  No options, so it is a risky play, but all things in my scientific understanding say it should work.

    Losses were in KPTI (still holding this one) and GBT (out of this).


  4. Pharm/KPTI – Happy New Year! You are expecting a positive result from SIENDO? I think it is a binary event for KPTI? Or is there something else?


  5. LQDA/Pharm  Since tanking from 11, this one had been languishing below 4 for a year. It's been a tough hold…..


  6. ….it really needs to get above 6 and stay there….


  7. 1020 — I know on LQDA. UTH litigation….Drug works. CEO is from UTH.  :)

    rn — not as much of a binary event, as the drug is already approved. But, it is a 3rd or 4th line approval.  




  8. For ARNA, I am buying the Jan 95Cs. If the data come out positive, PFE will buy. If it is equivocal, PFE may walk and ARNA will not get bought out. Otherwise, why would the stock be at 93, when PFE is buying at 100? That's an 8% hit on the premium difference, so something is rotten there.


  9. Pharm – I hope you and the Family are doing well… :)



  10. Good morning! 

    Happy Thoughts/1020 – Always.

    Hola, Pharm!  What do you think of MRNA going forward?

    Nasdaq falling hard while the Dow is flying higher.  Must be Tuesday….

       

    Oil (/CL) shot up to $77.50 but I just added 2 more so $77.32 is my average short on 3 contracts.  

        

    OPEC did increase output – I can't imagine what they are excited about so this is now a conviction play for me.  Their spin is what's selling it at the moment but their actions are most likely a mistake:

    Group of producers see Omicron as having a less devastating effect than variants behind previous pandemic waves

    OPEC and a Russia-led group of oil producers agreed to continue pumping more crude, betting that a global surge in cases of the Omicron variant of Covid-19 won’t have the sort of devastating effect on demand as previous waves of the virus.

     

     Omicron variant has triggered rapid-fire travel bans and restrictions around the world, threatening once again economic growth and oil demand. Omicron-related absences have hobbled airlines, rail lines and hospitals around the world. Companies have had again to rethink their back-to-the-office plans.

    But OPEC and other key energy actors are betting Omicron won’t deliver the kind of shock to oil prices unleashed by the first coronavirus shutdowns, when U.S. crude futures briefly turned negative, and subsequent waves. One reason, OPEC delegates said, is a determination inside the group that strengthening demand for oil, including from the petrochemicals industry, is offsetting an expected continuing decline in jet-fuel consumption.

    In its monthly report last month, OPEC raised its demand estimate for its own oil output by 200,000 barrels a day for 2022. Overall, the organization expects global oil demand to rise by 4.2 million barrels a day this year. “The impact of the new Omicron variant is expected to be mild and short-lived,” the cartel said in its report.

    See – Everything is Awsome!

    If $1,800 firms up, Gold could be getting ready for a good move:



  11. MRNA – Beyond COVID….I really don't know what else they have. I know they are trying to expand their footprint into vaccines, but the timing is much longer than the COVID timelines which were expedited due to the US Govt giving them lots of $$ and sped up reviews.


  12. I just got assigned short NLY Jan 2023 puts… this is bizarrely odd. Last month some DITM expiring calls did not get assigned. Something is broken. 

    Phil – I am now very long on S&P large caps, with no positions in financials or technology (except for one well hedged AAPL position). Can you suggest a hedge? Does hedging with TZA make sense (IWM falls with SPY?) 


  13. rn273 NLY what strike price did you have?


  14. $10 Puts.  If they did want to exercise it, last week immediately after ex-div would have made some (a little more) sense. 


  15. Having the same but still with .94 premium today. Would be great if they pay that much.


  16. NLY/Rn – It's a good sign to start coupon-clipping.   They are paying 11.25% (0.88) on an $8.12 share and trading low in the channel.   Rising rates can be a little bit of a problem for REITS but this is not NLY's first rodeo.  $8.12 is $11.6Bn and they are on track for $1.6Bn in 2021 and maybe a bit less in 2022.  Write-downs in 2019 and 2020 will keep them from paying taxes for a while as well.  Not sure what your net is but, even if it's $8, then you can sell 2024 $7 calls for $1.30 and 2024 $10 puts for $3 and that drops the basis to $3.70/6.85 – hard to complain…

    Oil back below $77 so that's a stop on 2 of my 3 shorts now. 

    Still riding the /ES shorts (4 at 4,788).  Was down $2,500  now up $2,500.


  17. That leads it to 10 high-conviction ideas for Q1, nine of which are bullish: Buy ratings on Citigroup (NYSE:C), Carrier (NYSE:CARR), CNH Industrial (NYSE:CNHI), CrowdStrike (NASDAQ:CRWD), Lamb Weston Holdings (NYSE:LW), Occidental (NYSE:OXY), Rexford (NYSE:REXR), ViacomCBS (VIACVIACA) and Xcel Energy (NASDAQ:XEL).

    Some of its biggest upside potential is seen in ViacomCBS (NASDAQ:VIAC), where a recent pullback makes for attractive risk/reward and a bull case "largely predicated on the recent wave of industry consolidation" – such as Discovery/Warner Bros., Amazon and MGM Studios, etc.

    "Given VIAC’s market positioning, they would be an attractive candidate with several assets that can command a premium for the right buyer," BofA says. But meanwhile, ad trends look healthy and streaming performance is tracking better than BofA's early 2021 predictions. An investor day in mid-February should provide more streaming detail after some early February Q4 earnings

    Phil / VIAC – B of A. best ideas 

     

     

    That leads it to 10 high-conviction ideas for Q1, nine of which are bullish: Buy ratings on Citigroup (NYSE:C), Carrier (NYSE:CARR), CNH Industrial (NYSE:CNHI), CrowdStrike (NASDAQ:CRWD), Lamb Weston Holdings (NYSE:LW), Occidental (NYSE:OXY), Rexford (NYSE:REXR), ViacomCBS (VIACVIACA) and Xcel Energy (NASDAQ:XEL).

    Some of its biggest upside potential is seen in ViacomCBS (NASDAQ:VIAC), where a recent pullback makes for attractive risk/reward and a bull case "largely predicated on the recent wave of industry consolidation" – such as Discovery/Warner Bros., Amazon and MGM Studios, etc.

    "Given VIAC’s market positioning, they would be an attractive candidate with several assets that can command a premium for the right buyer," BofA says. But meanwhile, ad trends look healthy and streaming performance is tracking better than BofA's early 2021 predictions. An investor day in mid-February should provide more streaming detail after some early February Q4 earnings


  18. I was assigned on 12/31 on the $10 Jan 22 NLY puts at Schwab. It's fine, now I have another 100 shares, collect the dividends and am working on reducing the cost basis by selling the puts and calls suggested by Phil in the above post.


  19. VIAC/Batman – That's what I was saying – at this price, they are going to get bought.

    At $33.08, VIAC's 0.96 dividend is 3.2%, that's not bad.   Still, it's only collecting $2 over 2 years and you can sell the 2024 $30 puts for $5 to net in for $25, which would make the dividend 3.8% so let's consider that $5 to be totally free money, as the worst case would be owning 500 shares for $15,000.  In that case, a spread would be:

    • Sell 5 VIAC 2024 $30 puts for $5 ($2,500)
    • Buy 10 VIAC 2024 $25 calls for $11.60 ($11,600) 
    • Sell 10 VIAC 2024 $30 calls for $8.80 ($8,800)

    That's net $300 on the $5,000 spread so, rather than spending $16,500 on 500 shares of VIAC at $33, you obligate yourself to buy 500 shares at $15,300 and at $30, you make $4,700 as opposed to losing $1,500 and collecting $1,000 in dividends. Of course, the real competition would be a stock spread like:

    • Buy 500 VIAC at $33 ($16,500)
    • Sell 5 VIAC 2024 $30 calls for $8.80 ($4,400)
    • Sell 5 VIAC 2024 $30 puts for $5 ($2,500) 

    So here you have net $9,600 invested and you'll collect $1,000 in dividends and, if called away at $30 ($15,000), you will make $5,400 more.  So the stock trade is better if you don't mind obligating yourself to DD at $30, which would put you in (less dividends) 1,000 shares at $24,600, which is $8,400 (25%) below the current price – as your worst case.  

    So both are good ways to play, more a matter of preference.  For me, in a PM account, I'd rather commit to 2x the options without using the cash.  

    BofA's top 10 Q1 ideas gather precision picks for a volatile quarter

    ViacomCBS Inc. (VIAC) Presents at UBS 2021 Global TMT Virtual Conference (Transcript)

    ViacomCBS: Buy The Streaming, Get The Legacy Business As A Gift

    Top Trades for Wed, 01 Dec 2021 12:52 – VIAC, INTC, MO, WBA and IBM (again)

    Top Trades for Wed, 13 Oct 2021 09:16 – BYD, GOLD, HPQ, PFE, SPWR & VIAC

    Top Trades for Mon, 29 Mar 2021 10:27 – DISCA and VIAC

    Top Trades for Thu, 03 Sep 2020 15:01 – VIAC

    Top Trades for Thu, 23 Jan 2020 13:36 – VIAC

    So that's 2 years of picking VIAC.  They had that big spike early last year and we cashed out and then we started buying again in March – after the drop below $40.  I think $30 is just silly for these guys (obviously).


  20. Won't be good for the Nas if 16,200 can't hold.  No real support to 15,600 other than the 16,000 line, of course but only because it's a round number.

    Bigger picture for the Nas is 10,000 to 15,000 with a 20% overshoot is where 16,000 is coming from (if you assume it's overbought).  If it's not overbought, then on the way to 20,000 should be consolidation at 15,000 and we had a bit of that and then the weak retrace from 20,000 would be 19,000 of course but the strong retrace at 18,000 would also be the weak retrace of the run from 10,000 to 20,000 so that is a very significant line.  

    Most importantly, we see that each 1,000 is significant and, within those bands, we then have 200-point blocks to move up and down so 16,200 is the weak bounce from an attempt at 17,000 and 16,400 is the strong bounce with 16,600 clearly having failed.  

    If then, 16,000 is going to be a base, we expect to see the strong bounce line (between 16,000 and 16,600) of 16,240 hold – but it isn't so now we look at the weak bounce line at 16,120 for the next support and, if that fails, then it's not likely 16,000 will be support either and we're heading back to major support at 15,000, which is also the weak retrace line of the run from 10,000 to 16,500 – so it all checks out.


  21. Sorry, that last bit was 10,000 to 16,500 – hit refresh.


  22. There are just too many companies – even AAPL at this point – that aren't worth what the market is valuing them at.  A strong economy can mask that with fresh money pouring in and few sellers but if the economy does weaken – where are the buyers going to come from for even AAPL at $180/share and paying $1.2Tn for TSLA at $1,162 or $1.75Tn for AMZN at $3,333 is just nuts.  

    And yes, I know AMZN keeps going up but they are not AAPL – they made $21Bn last year so 83x earnings is usual for them but, at a certain point, they aren't going to be able to keep growing at that pace.  At some point the market gets full.

    $500Bn is 10% of all Retail, now tied with WMT so 2 companies are doing 20% of all retail.  For AMZN to get down to a 40 p/e, they need to do 40% of all Retail by themselves.  How likely is that an how soon?  And if AMZN is 20% of all retail – what happens to the retailers in the real world and what happens to their landlords and what happens to the cities?  There's a lot of push and pull to these things once you get to this size – you can't just expand in a vacuum.  


  23. VIAC/Phil, for your stock VIAC trade, would you explain your thinking about selecting the $30 call versus the $37.5 call? These two strikes are pretty close to equidistant in and out of the money. I guess I'm so used to selling OTM I have trouble thinking through the benefits of ITM short calls.  Thanks.


  24. VIAC/Phil – While we're on the topic… I bought some on the way down and now have somewhat of a mess:

    Bought 10 2023 $40 Calls at 16, now  2.80 (-13,150)

    Bought 10 2023 $30 Calls at 11, now 6.60 (-4656)

    Sold 5 2023 $45 Calls at 3.75, now 1.95 (+2770)

    And finally  to try to help, Sold 10 2024 $40 Puts at 10 

    I'm OK waiting  and just selling more Calls – just curious what you would do? 

    Thanks


  25. VIAC/Steve – Not sure what you mean by equidistant.  I'm setting a conservative goal that has a very strong probability of success where the worst-case scenario is simply owning the stock for a discounted price.  This is just not an aggressive option play but the first one requires just $300 in cash and maybe $1,500 in margin to make up to $4,700 (1,566% on cash, 313% on margin) if VIAC simply doesn't drop 10% in two years.  If you were willing to risk owning 5,000 shares of VIAC for $153,000, you make $47,000 as long as it stays over $30.  That's 30.7% over 2 years – even if you consider 100% of the money at risk – so it's not even a bad play for an IRA or 401K generating over 15% tax-free.  

    You don't have to swing for the fences on every trade – it's nice to have some firm money-makers you can count on – especially in an uncertain environment.

    VAIC/Eca – Well the main problem is you bought calls, paid premium and didn't sell any.  There's no magic fix for that other than, hopefully, learning your lesson.  Had you taken the $30/40 spread for maybe $5, it's now about $4 and very easy to adjust.  As it stands, you have $9,400 in long calls and the short put target is fine so it's really about can you make up a $17,806 loss with $9,400?  

    The 2024 $22.50s are $25s are $12 and the 2024 $35 are $6.70 so net $5.30 on the $10 spread means you can only double $9,400 as it stands but you did sell the puts for $10,000 so, at $40 – you would not be in terrible shape.  I'd be happy with that for now and see how things go.  You don't want to sell too many open short calls because, if the company gets bought over $45, it will eat into your gains.  The 10 short puts are already as aggressive as you want to be so playing it this way to get about even is a win vs where you are now.


  26. Phil/IBM I am in a Jan '23 110/130 bull call spread, the options now restricted and marked IBM1. I just entered a 130/135 bull call spread and now am long and short the 130 options. The short ones are plus $3.01 today and the long ones are plus $1.59 today. Can you help me understand this?


  27. VIAC/Phil: my question was about choosing the call strike price at $30 vs $37.50. If I’ve done my math correctly (rounded off): if the stock price stays below about $35, it’s better to have sold the $30 call, which you did.  And if the stock price ends up above about $35, one would have been better off selling the higher $37.5 call.  I guess in the end as you said, it’s about how conservative one wants to be with the strike selection.


  28. Phil / BABA – this is a big deal – Munger is pretty tight with one of  the top China Fund managers in the world, and has a big stake in BYD as well….    Maybe this puts a bottom in and provides some strength in the stock…  300K shares to 600K shares in the last Quarter to Dec 4.

    Charlie Munger boosts Alibaba stake, purchases another 300K shares

    https://fintel.io/i13f/daily-journal/2021-12-31-0

    Charlie Munger boosts Alibaba stake, purchases another 300K shares

    Berkshire Hathaway (BRK.ABRK.B) Vice Chairman Charlie Munger has boosted his personal stake in Chinese internet giant Alibaba (NYSE:BABA), buying an additional 300,000 shares, according to the most recent 13F filing.

    In October, Munger and an investment firm he chairs, known as Daily Journal, started buying shares of the battered Chinese e-commerce giant, while the market continued to punish the tech company.

    Over the past year, Alibaba (BABA) shares have declined more than 47% on concerns that the Chinese government was cracking down over the power that it, along with other Chinese tech firms, possess.

    Alibaba (BABA) shares have continued that drop into the new year, as data showing a conversion of ADRs into Hong Kong shares have accelerated in recent days.

    Last month, an op-ed posted in the influential Chinese website, Global Times, widely considered to be one of the main voices for the Chinese Communist Party, suggested that Alibaba (BABA) may emerge from the "dark woods" in 2022.


  29. that F story should make F a canidate for the Future portfolio!


  30. If the electric  F150 can sell out year one and Ford adds that much production for year 2, critical mass production is right around the corner. I am very bullish on Ford and I sell Honda's!