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Wimpy Wednesday – Weak Sanctions Won’t Stop Putin

Sanctions! 

That's how the US and NATO are responding to Putin's entry into the Ukraine and note there is only one red box in the area we're paying attention to but many, many red boxes now surrounding the country.  We tried scantions in 2014, when Russia invaded Crimea and, guess what?  They are still there!  

So, since sanctions had zero effect last time and this time Putin has had 8 years to prepare for more sanctions – it's kind of a useless, futile effort on the part of the Allied forces.  Literally the LEAST we could possibly do to pretend we are responding.  According to a White House Press Release:

"Treasury is targeting Russia’s ability to finance aggression against its neighbors by sanctioning the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), along with 42 of their subsidiaries. VEB is crucial to Russia’s ability to raise funds, and PSB is critical to Russia's defense sector. These sanctions ensure VEB and PSB can no longer do business in the United States and are cut off from the U.S. financial system. All assets under U.S. jurisdiction will be immediately frozen and U.S. individuals and entities are prohibited from doing business with these institutions unless authorized by OFAC. This will immediately impair the ability of VEB and PSB to perform basic functions in the international financial system. Today’s action constrains Russia’s ability to finance defense-related contracts and raise new funds to finance its campaign against Ukraine. Treasury is also designating influential Russians and their family members in Putin’s inner circle believed to be participating in the Russian regime’s kleptocracy, including the Chairman and CEO of PSB."

Stock market matchup: Yellen vs. PutinYes, that's it.  That is how we are responding to Russia invading a neighboring country – we send Janet Yellen out to attack Putin.  Fortunately for Yellen, Putin is only 5 foot 7 but he's still got 4 inches on Yellen at 5 foot 3 and yes, US foreign policy is now so stupid that we may as well compare height and age (Putin is 6 years younger at 69) but, of course, Putin is a trained assassin while Janet Yellen is from pre-gentrified Brooklyn – so he doesn't stand a chance….  

There's actually a lot of Russians in Brighton Beach, which is called Little Odessa, so Yellen is used to dealing with them – maybe she is Biden's best choice against the Russian Oilgarch?  Of course, the US has no desire to get into a war, proxy or otherwise with Russia but the lack of strong response here is only going to lead to China taking Taiwan down the road.  We should have learned from WWII that sanctions and strongly worded letters and appeasment is not the way to stop expansionist aggression – yet we go to that playbook every time.

As we were discussing on Bloomberg last week, the market doesn't care if Russia invades Ukraine, it only cares about what kind of disruption it causes and, with these half-assed sanctions, the answer is not much so we have a bit of a relief rally this morning and the Nasdaq is already back over 14,000 – after bottoming out at 13,700 yesterday.  Still it's a dire situation and, as long as the Russell is under 2,000 (it's right on the line), we can expect more market pain ahead as there are way worse things out there than Vladimir Putin.

So far, the Bounce Chart this morning is the same as it was yesterday morning:

  • Dow 36,000 to 28,800 would be a 7,200-point drop with 1,440 bounces to 30,240 (weak) and 31,680 (strong).   
  • S&P 4,800 is 20% above 4,000 and that makes it an 800-point drop with 160-point bounces so 4,160 (weak) and 4,320 (strong) is where we are this morning (again).
  • Nasdaq is using 13,500 as the base and we bottomed yesterday at 13,580.  14,100 is the weak bounce and 14,700 is strong.  
  • Russell 1,600, would be about an 800-point drop with 160-point bounces to 1,780 (weak) and 1,960 (strong).
   

I know you look at these charts and you WANT to believe we're making a bottom at 14,000 but 14,000 is SUPPOSED to be bouncy and 14,100 is the real number anyway so failing to get over that is BAD.  That's what the Bounce Charts do – they stop us from engaging in wishful thinking and stick to the facts. 

At the moment, we are remaining cautious – especially until we see this chart back to green.

 


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  1. Phil, I agree with you 100%. Even worse Germany stops a gas pipline which never delivered gas in the first place. More than that, Europe depends more on gas and oil deliveries, than Russia needs to be paid for it. The western still has not learned the games of kings, chest.


  2. Good Morning!


  3. Nukes Baby, Nukes…..


  4. Yellen negotiates with Putin in the same room, naturally he falls asleep listening to her, then she whacks him in the head.


  5. Trained assassin – I like it!  ;)


  6. putin would relish war games with the US in the Ukraine….

     

    Winner takes all.


  7. BDX – This is annoying. We have BDX in our butterfly portfolio. Spin off to give 1 share of embecta (their diabetes business) for every 5 BDX shares. 

    https://investors.bd.com/news-releases/news-release-details/bd-board-directors-approves-embecta-spinoff-and-declares



  8. Putin Is Making a Historic Mistake



  9. Putin/Yodi – I would have responded by moving 200,000 troops at least into countries around Ukraine, if not Ukraine itself.  That would have forced Putin's hand and I don't think he has a stomach for a real war – he just things everyone will roll over for him.  I'd also sign a 5-year LNG supply deal with all the people who are supposed to be served by Nordstream – that's the way to get to Putin – cut off his income!  He may be in charge of Russia – but he still has boards of directors he ultimately needs to answer to.

    Nukes/1020 – Yeah baby!

    Image of We have to nuke them. We have to nuke them now!

    BDX/Rn – It's not so bad as I don't think it's creating a different class of options under BDX, just spinning out shares in the new company but we'll have to see if anything changes.  Steady as she goes so far:

    This is the "problem" with value investing – we end up being in a lot of stocks where someone tries to unlock the value.





  10. EPR significantly beat expectations yesterday. 2022 guidance is 4.3-4.5. Trading at just under 50, and pays out a monthly dividend. Increased payout by 10% yesterday, so now $3.3 annually. They own amusement parks and ski resorts (including Camelback in the Poconos for us New Jerseyites). 


  11. Is IBM just caught up in the general sell-off?  Don't  see any news or catalysts.


  12. Camelback was packed over Thanksgiving… easily spent $1000 / night


  13. Phil / LRCX –  This is hitting an interesting level…..    They should have 2 to 3 years of growth ahead of them….  they are a big supplier to MU and other RAM and other high end component co.   They are launching a new handling process with better / new vertical movements that significantly improves efficiency for their customers.   I have them at a 650 to 700 price target…..  


  14. "but, of course, Putin is a trained assassin while Janet Yellen is from pre-gentrified Brooklyn – so he doesn't stand a chance…."

    Phil:  Thanks for the above line. It is very funny.


  15. /SI on a tear now.  

     

    Indexes back in that pump and dump pattern – very bad.  

       

    Not even much of a pump.

    EPR/Rn – Well, they made around $225M pre-pandemic and lost $132M last year and they don't project normal for 2 more years so you have to ride it out.  $50 is $3.5Bn and if we assume back to $225M it's 15x normal earnings but we're assuming Covid goes away and nothing worse replaces it.  My big worry is cash went from $1Bn in 2020 to $144M as of 9/29.  They just did earnings and they seem upbeat though most of their "beat" came from collecting deferred rents – not a trend to count on.   If I were going to play, I'd go with:

    • Buy 1,000 EPR @ $49.33 ($49,330)
    • Sell 10 Jan $40 calls for $11 ($11,000)
    • Sell 10 Jan $40 puts for $4 ($4,000) 

    That's net $35,330 on the $40,000 spread and you collect $3,000 in dividends while you wait to make a $4,670 profit so 21.7% total return over 12 months is a nice start and you either get assigned 1,000 more at $40 to average $37.67 (23.6% off) or, if it's up, you can roll the calls along to the next year and sell more puts.   That's a nice conservative way to begin and, in 5 years, you recover all the money and then you have 2x to collect on.

    IBM/Jeff – Just caught up in the down current. 

    The 25 stocks in the Wells Fargo Equity Strategy Active Management Hedge Portfolio are:

    1. AT&T (NYSE:T), portfolio weighting 2.5%, analyst rating Equal Weight
    2. Verizon (NYSE:VZ), 2.7%, Equal Weight
    3. Amazon (NASDAQ:AMZN), 8.4%, Overweight
    4. Home Depot (NYSE:HD), 3.1%, Overweight
    5. Lowe's (NYSE:LOW), 2.5%, Overweight
    6. McDonald's (NYSE:MCD), 2.6%, Overweight
    7. Target (NYSE:TGT), 2.4%, Equal Weight
    8. Tesla (TSLA), 6.9%, Equal Weight
    9. Costco (NASDAQ:COST), 2.7%, Overweight
    10. Coca-Cola (NYSE:KO), 2.7%, Overweight
    11. Procter & Gamble (NYSE:PG), 3.1%, Overweight
    12. Walmart (NYSE:WMT), 2.6%, Overweight
    13. Chevron (NYSE:CVX), 2.8%, Overweight
    14. Exxon Mobil (NYSE:XOM), 3%, Overweight
    15. JPMorgan Chase (NYSE:JPM), 3.2%, Equal Weight
    16. AbbVie (NYSE:ABBV), 2.7%, Overweight
    17. Johnson & Johnson (NYSE:JNJ), 6.2%, Overweight
    18. Merck (NYSE:MRK), 2.6%, Overweight
    19. Pfizer (NYSE:PFE), 2.9%, Overweight
    20. Apple (AAPL), 12.1%, Overweight
    21. Cisco (NASDAQ:CSCO), 2.7%, Overweight
    22. IBM (NYSE:IBM), 2.4%
    23. Intel (NASDAQ:INTC), 2.6%, Equal Weight
    24. Microsoft (MSFT), 11.1%, Overweight
    25. Nvidia (NASDAQ:NVDA), 3.7%, Overweight

    See UBS' list of most crowded and least crowded trades.

    Camelback/Pman – I used to have a place there, nice.  That price is sticker shock though.  Sold it when the kids got too good – got a place in Hunter (and had one in Killington and Tahoe). 

    LRCX/Batman – Should be an up cycle for them and $79Bn at $550 is a good price as they are dropping $4.5Bn to the bottom line (15x).  That's projections but they made $4Bn last year so probably yes.  Still, you want to be sure they work out supply chain issues, which they blamed their recent revenue miss on.  LRCX does a lot of business with China and that could be a land-mine down the road.  So I would not be aggressive with targets but this is a good price so more like:

    • Sell 5 2024 $400 puts for $48 ($24,000)
    • Buy 10 2024 $400 calls for $203 ($203,000) 
    • Sell 10 2024 $550 calls for $122 ($122,000) 

    That would be net $57,000 on the $150,000 spread and, if it starts going well (next earnings), you could buy 5 more bull call spreads for about $80,000 and sell 5 short June $600 calls, now $35 ($17,500) and the extra 5 spreads will be paid for for a bonus $75,000. 


  16. Yikes, only an hour to go:

    Here is the link to today's webinar

    https://attendee.gotowebinar.com/register/8262463067130832395



  17. Slight delay – computer demanded to be restarted

    Hopefully 1:15


  18. Very bad action in the indexes.  Won't be surprised if we close at new lows. 

       

    Not even the Dollar's fault.

    Stop on /SI at $24.50 for 1/2 and $24.40 for the rest to lock in very nice gains.  

    /NG can be played long over $4.50 ($4.57 now)







  19. Prosecutors Leading Trump Fraud Investigation in NY Resign


  20. Timeline: UN Climate Talks




  21. Indexes are down 2.5%, gold and silver or up 2.5%, oil and gas up 5%…