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Tuesday, August 16, 2022

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Fed Fueled Thursday – Putin Puts Powell on Pause

Oil hit $116.57 overnight.

Now it's "down" to $112.50 as Russian troops contine to march and bombard their way to Kyiv and one million out of 40M people in Ukraine have been driven out – becomming the kind of refugees Republicans would build a wall to keep from safety and sanctuary.  I mean, look at these two kids, exactly the kind of people our ex-President warned us about when he said:

"When Mexico sends its people, they're not sending their best.  They're not sending you.  They're not sending you.  They're sending people that have lots of problems, and they're bringing those problems with us. They're bringing drugs. They're bringing crime. They're rapists." – Trump

THIS is how people become refugees, Governments change, homes are destroyed, people find themselves on the wrong side of wars they had nothing to do with and they have nowhere to go in their home country (and yes, there are economic refugees also, just looking for opportunity in a country that used to call itself "The Land of Opportunity"), so they end up being "refugees" and what they need is help – not scorn.  

Could you imagine if President Biden said he'd be happy to take 100,000 Ukranian refugees?  Even though the US could sure use 100,000 new workers – you KNOW what the reaction would be.  Air BnB (ABNB), on the other hand, put up a page asking their rental partners to host some refugees, charging nothing and providing insurance for people willing to lend their unused housing to refugees.  They expect to be able to house 100,000 refugees for up to 14 days – a huge help in the crisis – kudos to them!

Meanwhile, all this is great for the market (apparently) as it has made Powell tip his hand and assure Congress that there will only be a 0.25% rate hike in March – not the 0.5% expected and that was all the markets needed to hear yesterday to set off a very nice rally because, in the end, the markets don't care about a war in Ukraine any more than they care about 2,000 people a day still dying of Covid in the US or the latest Intergovernmental Pannel on Climate Change report that essentially says we are all going to die.  If we are going to die – then we'll do it at 40 times earnings, I guess…

Unit Labor Costs this morning were up 0.9% in Q4 vs 0.3% expected by our finest Economorons – off by 200% is right in their wheel-house.  Tomorrow we get Non-Farm Payrolls with about 400,000 new jobs expected but if hourly earnings (0.5% expected) are as bad as Unit Labor Costs – the market is not going to like that at all.

Meanwhile, enjoy the rally.

 

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Biden was spot on: The meat monopoly is real….. article from above

TSN is about $95    you could do an October $95 covered call for $8.80   That is below the gap from the last  earnings.  over 9% return plus a couple of dividends.  Biden is not going to be able to do anything to TSN, one of the only domestic meat producers and in republican Arkansas    Other option activity recently –

on 3-2- 22 there were 900 June $95 calls were bought for $6.50

3-1-22    1000 June $95 calls bought

2.22-22   3000 June $80 puts were sold for 

 TSN can be my food inflation hedge, so unless you are a vegetarian, who doesn't eat a lot of chicken now-a-days?  This got me to thinking, what ever happened to Santa's Secret Inflation hedges.  Those usually worked out nicely 

Big Lots (BIG) reported earnings today for Q4- EPS of $1.75 missed by $0.14, revenue of 1.73B beat by 10M. Their Q4 is Nov – Jan (not Oct-Dec).

In the earnings call, things got interesting. The EPS drop was attributed to high Jan shrink rates, especially in California, where they said the high crime wave had resulted in a $0.3 (!) decrease in EPS – so they should have beat if not for people shoplifting? They have implemented new processes to decrease shrink rates, so lets see if that works out. 

Q1 2022 guidance is $1.1-1.2 against expected $1.58. Supply chain, inflation related uncertainties means they cannot issue a full year guidance.

Phil – I didn't hear anything that makes me sell out of my longs. Your thoughts? I currently hold naked long $30 2024 calls, waiting to cover when it goes back to $40+

WEAT is my food hedge. I have a bread subscription with my local Bakery. Every Thursday, I go pick up a loaf of Artisan bread of a rotating type. It is $7.50 well spent. The $2k in profits should sustain my subscription (assuming we can get enough wheat and inflation is not like the Weimar hyperinflation) 

( I would hate to have to make the choice between currency or kindling ).

 

The 1921–1924 hyperinflation happened mainly because of three things: the ongoing internal political instability in the country, the occupation of the Ruhr district by foreign troops, and when the Weimar (modern-day Germany) government printed too much banknotes to pay reparations after the 1923 French invasion. Because the banknotes were not matched by Germany's production, their value fell.

In 1922, a loaf of bread cost 163 marks. By September 1923, during hyperinflation, the price crawled up to 1,500,000 marks and at the peak of hyperinflation, in November 1923, a loaf of bread costs 200,000,000,000 marks. 

 

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