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Thursday Market Thoughts – Post Fed

Cartoon of the Day: Volcker to PowellI don't know what everyone is so happy about.

Yes, Powell said he feels the economy is strong but that was in the context of saying he wants rates to be close to 2% by the end of the year, that's up almost 10 TIMES from 0.25% we started the year with!  Just because Powell says he doesn't think it will hurt the economy much doesn't mean it's true, does it?  In fact, if you take a look at the Fed's own projections – things really don't look that good at all:

Variable Median1 Central Tendency2 Range3
2022 2023 2024 Longer run 2022 2023 2024 Longer run 2022 2023 2024 Longer run
Change in real GDP 2.8 2.2 2.0 1.8 2.5–3.0 2.1–2.5 1.8–2.0 1.8–2.0 2.1–3.3 2.0–2.9 1.5–2.5 1.6–2.2
December projection 4.0 2.2 2.0 1.8 3.6–4.5 2.0–2.5 1.8–2.0 1.8–2.0 3.2–4.6 1.8–2.8 1.7–2.3 1.6–2.2
Unemployment rate 3.5 3.5 3.6 4.0 3.4–3.6 3.3–3.6 3.2–3.7 3.5–4.2 3.1–4.0 3.1–4.0 3.1–4.0 3.5–4.3
December projection 3.5 3.5 3.5 4.0 3.4–3.7 3.2–3.6 3.2–3.7 3.8–4.2 3.0–4.0 2.8–4.0 3.1–4.0 3.5–4.3
PCE inflation 4.3 2.7 2.3 2.0 4.1–4.7 2.3–3.0 2.1–2.4 2.0 3.7–5.5 2.2–3.5 2.0–3.0 2.0
December projection 2.6 2.3 2.1 2.0 2.2–3.0 2.1–2.5 2.0–2.2 2.0 2.0–3.2 2.0–2.5 2.0–2.2 2.0
Core PCE inflation4 4.1 2.6 2.3   3.9–4.4 2.4–3.0 2.1–2.4   3.6–4.5 2.1–3.5 2.0–3.0  
December projection 2.7 2.3 2.1   2.5–3.0 2.1–2.4 2.0–2.2   2.4–3.2 2.0–2.5 2.0–2.3  
Memo: Projected appropriate policy path
Federal funds rate 1.9 2.8 2.8 2.4 1.6–2.4 2.4–3.1 2.4–3.4 2.3–2.5 1.4–3.1 2.1–3.6 2.1–3.6 2.0–3.0
December projection 0.9 1.6 2.1 2.5 0.6–0.9 1.4–1.9 1.9–2.9 2.3–2.5 0.4–1.1

The US GDP has been downgraded 30% from 4% growth to 2.8% growth for 2022 and inflation is up over 50% from 2.6% to 4.3% this year and that's AFTER more than DOUBLING the target raise in Fed funds from 0.9% to 1.9%.  What exactly are the markets excited about here?  

Of course, they are really not that excited as the S&P 500 (/ES) is barely at the Strong Bounce line at 4,320 and it must hold for 2 consecutive closes without breaking intra-day for us to count it as clear.  The Nasdaq is still 200 points away from a weak bounce at 14,100 as well so what we'll see today and tomorrow is whether or not Powell's happy talk has any legs.  

Oil blasted back to $100 this morning and we were so busy with Fed nonsense yesterday in our Live Trading Webinar that we didn't get to the Petroleum Status Report and what we were looking for was whether the 4.3Mb build in Oil was caused by a release from the Strategic Petroleum Reserve but only 2Mb was released and, what's really interesing is, for all the whining we're hearing about needing to produce more oil – the United States is currently EXPORTING 3.3Mb/d of petroleum products - that's 23 MILLION barrels per week, which is an ENTIRE DAY of US "consumption" (21Mb/d) and, more importantly, it is as much as ALL of the oil we import (3.36Mb/d)!  

Does anyone in Congress understand this stuff?  Does anyone in the media?  Have them call me (seriously) and I will explain how oil production and consumption actually work in the US and the World at large.  The short story is this EIA Report clearly indicated that the US does not need to import ANY oil at  all – we are simply using imports to benefit the refineries who turn the oil into other products and ship them back out of the country.   There is no crisis in the US – as Robert Reich keeps saying, it's a sham being generated by the Oil Companies to wring additional profits out of US consumers.

Russian oil constitutes just 7.9% of our imports – just 266,000 barrels per day of our 21,044,000 barrels per day consumption.  The vast majority of our imported oil comes from Canada.  Does anyone at Fox News understand this at all?  So yes, we can live without Russian oil and we don't have to let the oil companies dig up your back yard to do it either…  

On the global stage, Russia is a huge exporter of oil – sending out 8M barrels per day to other countries.  Not much goes to us but, if they were to stop supplying, then all the other oil we buy would become scarce.  Of course, 8M x 365 x $85 is $248Bn or 20% of Russia's economy so it's not at all likely they will stop exporting oil or they will also stop their economy

We're in week 4 of the war and possible peace talks were also boosting the markets yesterday but then Russia bombed a shelter housing hundreds of women and children so we'll see how that plays out.  We're sending weapons and money to Ukraine so Putin is going to need that $1Bn/day of oil money to buy more tanks if we keep blowing them up.  Wars are expensive, we spent Trillions on Iraq and Afghanistan in order to ????? and Putin doesn't have that kind of money.  In fact, that's how they lost the Cold War – they went bankrupt trying to keep up with Reagan's crazy defense spending (which is now called our normal military budget).  

If the war ends soon, great, maybe we can get back to normal(ish) but Jeff Gundlach sees a Recession next year and the Fed has embarked on a precarious balancing act, trying to rein in high inflation while simultaneously avoiding a severe economic slowdown (Recession).  Whether the economy can withstand rising rates during a period of geopolitical turmoil and a lingering pandemic is a question without an immediate answer.  

“I think the recession risk is very high,” said David Rosenberg, chief economist of his own firm, Rosenberg Research, in Toronto. “The Fed is caught in a box of its own making because it didn’t move quickly enough on raising rates. Now it has to be seen to move aggressively.”

One major thing Powelll said yesterday, in answer to a reporter's question was: "OBVIOUSLY" the Fed should have begun tightening rates earlier – before inflation got so high.  In the table above you'll notice the Fed stil hasn't accepted the reality of inflation in 2023 and 2024 – acting as if what they do in 2022 will be enough to fix everything.  If it's not, Gundlach will have his Recession – and we will all share in the pain.

 


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  1. Good Morning.



  2. MGM is now part of Amazon





  3.  The Fed is really in a tough spot. There are also the effects of supply chain issues.  The earthquake in Japan shutting down car factories will not have a positive effect on the supply and pricing for an increasing large ticket item.


  4. Good morning! 

    The Dollar fell almost 1% in the last two days so take 2% market moves up with a grain of salt (it's usually a 2x reaction in the markets for the very short-term).  

       

    Should the Dollar be lower?  Not really if the Fed is hiking at every meeting this year but the BOE has already had 3 hikes – so they are way ahead of us – as are other CBs who are more serious about fighting inflation.

    Philly Fed offsets the bad NY Fed report:

    Mar. 17, 2022 8:32 AM ET

    • March Philly Fed Business Outlook27.4 vs. +15 consensus, +16 prior (unrevised).
    • The prices paid index climbed 12 points to 81.0, its highest reading since June 1979.
    • The employment index rose to 38.9, its highest reading ever.
    • The current shipments index increased 17 points to 30.2, and the new orders index increased 12 points to 25.8, their highest readings since November 2021.

    Of course Philadelphia is a dot compared to the NY Region but we'll take a win when we can get it, right?  

    Maybe I'm getting some people to actually do the oil math:

    • As war broke out in Ukraine, Western energy companies refused to purchase Russian oil cargoes; Energy Intelligence estimated the total impact of self-sanctioning at ~2.5mb/d of oil and oil product.
    • The group later revised its self sanctioning estimate upwards, to 3.0mb/d.
    • The IEA Wednesday said that Russian self-sanctioning has yet to hit physical markets, as cargoes purchased before the invasion continued to sail; the Agency said that from April onward, self-sanctioning would restrict Russian supply by ~3mb/d.
    • Morgan Stanley on Thursday adjusted the bank's supply forecast, reducing Russian volumes by 1mb/d from April onwards.
    • However, Energy Intelligence has now flipped its position, the group now says Russian exports are running at close to normal levels.
    • Energy Intelligence notes that trades have increasingly "gone dark" — trades posted by Platts have slowed, while ship tracking data points to continued exports.
    • Trading houses like Trafigura, Gunvor and Vitol have picked up what the majors like Total (TTE), Shell (SHEL) and Equinor (EQNR) left behind, according to Energy Intelligence.
    • Given the time lag between purchase and loading (~one month) and time lag between loading and visibility in on-shore storage tanks (~one month), there's little concrete data to observe the actual impact of self-sanctioning; however, the market is sure to remain focused on the dynamic, with summer driving season approaching and inventories at multi-year low levels.

        

     

    $4.50 line wins again on /NG!  

    NG1:COM +4.02%Mar. 17, 2022 10:30 AM ET

    More than estimated by who?  We went over this map on March 4th showing it was obviously getting colder again:  It's like these "experts" don't have access to this FREE data that we're able to use to make our own projections…

    Image

    Tough spot/Randers – I know, I'm starting to lean more towards cashing out – though I really love our positions.

    REZ +0.55%Mar. 17, 2022 10:12 AM ET1 Comment

    • 30-year fixed-rate mortgage averaged 4.16% with an average 0.8 point for the week ending Mar. 17, 2022, up from last week when it averaged 3.85%; higher than 3.09% a year ago, according to the Freddie Mac Primary Mortgage Survey.
    • "The Federal Reserve raising short-term rates and signaling further increases means mortgage rates should continue to rise over the course of the year. While home purchase demand has moderated, it remains competitive due to low existing inventory, suggesting high house price pressures will continue during the spring homebuying season," Chief economist Sam Khater commented.
    • Federal Reserve raised federal funds rate target range by 25 basis points to 0.25%-0.5%, first hike since 2018.
    • 15-year fixed-rate mortgage averaged 3.39% with an average 0.8 point, up from last week when it averaged 3.09% and a year ago at this time, the 15-year FRM averaged 2.40%.
    • 5-year Treasury indexed hybrid adjustable-rate mortgage averaged 3.19% with an average 0.2 point, up from last week when it averaged 2.97% and a year ago at this time, the 5-year ARM averaged 2.79%.
    • Despite mortgage rates rising amid a tightening Federal Reserve monetary policy for fighting high inflation, homebuilding is likely to remain supported by scarcity of homes available for sale.
    • Earlier in the day, housing starts surged 6.8% to a seasonally adjusted annual rate of 1.769M units last month.
    • Applications for purchase mortgages narrowed 3.9% Y/Y in February, according to the Mortgage Bankers Association.
    • The National Association of Homebuilders reported its measure of single-family homebuilders confidence dropped to 6-month low in March; gauge of future sales was the lowest since June 2020.
    • Mar. 17, 2022 9:51 AM ET

      • U.S. home sales and inventories dipped in February as prices reach new highs, according to RE/MAX's national housing report, which is based on data in 51 metropolitan areas.
      • "With such high demand and low inventory, houses are flying off the shelves right now – even at prices that have reached new highs," said RE/MAX President and CEO Nick Bailey.
      • The slight M/M decline in home sales could set the stage for what is typically the year's biggest M/M ramp-up in sales, as March usually is considered the start of the spring home-selling season, the report said. "Having more listings on the market would be good for everyone, but the stage is set for another active spring selling season," Bailey added.
      • Home sales edged down 0.9% M/M in February, and inventory fell 6.8% following double-digit declines in the previous four months
      • Median sale price of $345K – the highest in report history – was 3% higher than in January and 17.3% above last year's figure.
      • Earlier, housing starts grew 6.8% in February.

    That's another thing that we've talked about happening for ages.  We just talked about it in yesterday's webinar, in fact. 


  5. LMAHDS03:COM +3.07%Mar. 17, 2022 9:50 AM ET

    Aluminum prices rise for a second straight day on hopes of economic stimulus in China, the biggest consumer, but the London Metal Exchange's attempt to reopen trading in the nickel market was delayed for hours due to problems with the LME's electronic system.

    According to Reuters, LME benchmark aluminum (LMAHDS03:COM) recently was +2.2% at $3,328.50/metric ton; prices have been volatile since Ukraine was invaded by Russia – which produces 6% of global supply – surpassing $4K/ton on March 7 and falling to as low as $3,200 two days ago.

    U.S.-traded aluminum-related stocks open higher: NYSE:AA +3.2%CENX +3.2%ARNC +4.4%.

    LME nickel plunged 8% to $41,945/ton, the maximum allowed under new exchange rules, as soon as the market opened, with only eight contracts traded before trading was halted.

    The LME is being sharply criticized by metals market veterans and general investors alike for its handling of the situation, and Bloomberg reports several have said they will stop trading on the market.

    The latest nickel price drop brings LME prices closer to the value of futures in Shanghai, which continued to trade during the London suspension.

    Among other base metals, benchmark copper (HG1:COM+1% to $10,155/ton, zinc (LMZSDS03:COM-0.3% to $3,799/ton, lead (LL1:COM+0.5% to $2,262.50, and tin (LMSNDS03:COM-1.5% to $41,650.

    ETFs: COPXCPERJJCTFJJCJJU

    After uncertainty about exports from Russia pushed prices to record highs, aluminum futures fell 10% last week.

    WBA -1.06%Mar. 17, 2022 9:35 AM ET1 Comment

    • Walgreens Boots Alliance (NASDAQ:WBA) and VillageMD said they plan to open three more Village Medical at Walgreens primary care in the Southern New Hampshire area by the end of summer 2022, with the first opening on April 19.
    • The companies expect to open more than 200 practices by the end of 2022. Including the new openings, VillageMD and Walgreens have now opened about 100 practices across 13 markets, including Arizona, Florida, Texas, Kentucky and Indiana.
    • The company said the three new primary care practices will be located in Manchester, Hooksett and Nashua.
    • The new Village Medical at Walgreens practices will create more than 80 full-time jobs and employ more than 35 science, technology, engineering and mathematics professionals, the companies said.

    USO -0.51%Mar. 17, 2022 8:33 AM ET1 Comment

    • After the close Wednesday, Morgan Stanley adjusted oil supply / demand balance forecasts (NYSEARCA:USO), and increased 2H 2022 and 2023 oil price estimates.
    • On March 1st, Morgan Stanley increased its Q2 oil price estimate to $115, citing a geopolitical risk premium.
    • Wednesday, the bank pointed to tanker tracking data suggesting Russian volumes are struggling to find a home, and assumed a reduction of 1mb/d in Russian volumes from April onwards.
    • The bank also trimmed oil demand growth for 2022 by 600kb/d, citing a reemergence of Covid in China and moderation in global GDP forecasts.
    • The bank left its Iran supply forecast unchanged and continues to see +1mb/d from Iran in mid 2022.
    • Morgan Stanley now sees Brent oil prices at $120/b in Q3 (up from $100/b), $100/b in 2023, and thinks oil prices could average $150/b for the remainder of 2022 in a "bull case" (XLE).

    OXY -2.82%Mar. 17, 2022 8:27 AM ET16 Comments

    • Warren Buffett's Berkshire Hathaway (NYSE:BRK.B) (NYSE:BRK.A) has loaded up on more Occidental (NYSE:OXY) stock this week, adding 16.2M of the petroleum company's shares to Berkshire's 118.3M share stash, according to an SEC filing.
    • The purchases bring its stake in OXY to 136.4M shares, or ~14.6% of its shares outstanding.
    • Berkshire (BRK.B) bought the latest shares in multiple transactions from March 14 to March 16, at average per-share prices ranging from ~$53 to $55.38.
    • In addition to the common shares in Occidental (OXY), Omaha, Nebraska-based Berkshire (BRK.B) holds 200,000 series A preferred stock. Warrants that Berkshire holds would allow it to buy almost 84M shares of OXY stock at $59.624 per share. OXY shares closed at $52.99 on Wednesday.
    • Previously (March 12), Buffett's Berkshire Hathaway buys $1.5B more Occidental stock week after $3B purchase

    AAPL -1.11%Mar. 17, 2022 7:56 AM ET18 Comments

    Apple (NASDAQ:AAPL) is still the top tech stock to own at Wedbush Securities after the Federal Reserve gave what the investment firm called a "bright green light" to own oversold tech stocks after it raised interest rates on Wednesday.

    In a note to clients, analyst Dan Ives said that with the rate hike, along with expectations that six more rate hikes are coming this year and three in 2023, now is the time to own oversold tech stocks as investors feared the worst from the central bank, adding that the bottom is "now likely in for the year."

    Ives said the Fed's decision "takes the uncertainty and overhang away from the tech sector," as Wall Street now knows the "clear path ahead on rates."

    "In a nutshell, we believe the tech sector is as oversold as we have seen in the last five years," Ives said, adding while Apple (AAPL) is Wedbush's "clear favorite", companies in the cloud, software, cybersecurity and semiconductor sectors are one the brokerage would "strongly be buying" now.

    Apple (AAPL) shares were down roughly 0.5% to $158.69 in early trading, while some of the other tech stocks that Ives mentioned, including Microsoft (MSFT), Oracle (ORCL), Adobe (ADBE) and Salesforce (CRM) all remained just above or below their breakeven points for the day.

    Ives noted that the digital transformation theme that has played out over the past couple years as a result of the pandemic is "gaining more steam" this year, citing enterprise checks and investors have "sold the tech sector indiscriminately across the board."

    Aside from the aforementioned tech stocks, Ives also said that the cybersecurity sector is "poised to surge," noting that there has been an "elevated" number of cyberattacks due to the Russian invasion of Ukraine.

    As such, companies like Palo Alto Networks (PANW), Zscaler (ZS), CrowdStrike (CRWD), Tenable (TENB), Varonis (VRNS), Fortinet (FTNT), CyberArk (CYBR), Palantir (PLTR), Check Point (CHKP) and SailPoint (SAIL) are poised to benefit.

    On Monday, Morgan Stanley said Apple (AAPL) would only see a "minimal" impact from Foxconn shutting its Shenzhen, China plant. Yesterday, however, Foxconn said it would restart production at its Shenzhen operations on a limited basis.

    SIG +4.83%Mar. 17, 2022 7:11 AM ET

    Signet Jewelers Limited (NYSE:SIG) added to Wednesday's gain with a push higher on Thursday following a narrow Q4 earnings beat.

    Same-store sales rose 23.8% during the quarter, consisting of a 34.6% jump in brick-and-mortar sales and 8.7% gain in e-commerce sales.

    Non-GAAP operating income of $411.0M compared to $293.8M in FY21 and $270.3M in FY20.

    Average transaction value increased 16.8% in North America and the number of transactions increased 3.6% compared to last year. ATV decreased 2.2% in international markets and the number of transactions increased 37.6% compared to last year.

    Looking ahead, Signet (SIG) expects total revenue in the range of $8.03B to $8.25B in FY23 vs. $7.89B consensus.

    CEO outlook: "Despite a challenging macro environment ahead, we believe that we are well-positioned in partnership with our strategic suppliers. We're confident in the sustainable competitive advantages we've built and our ability to leverage our enhanced infrastructure and scale to continue growing ahead of the jewelry industry."

    Shares of Signet Jewelers Limited (SIG) rose 6.46% in premarket trading to $82.74 following the sales topper.

    That's an old table-banger of ours.


  6. Vincent van Gogh



  7. MCD -1.23%Mar. 17, 2022 7:01 AM ET14 Comments

    Morgan Stanley lowers estimates on McDonald's Corporation (NYSE:MCD) to reflect impacts to the restaurant operator's business in Russia and Ukraine for FY22 and beyond. Russia and Ukraine are noted to combine to represent 2% of system sales, 9% of revenues and less than 3% of operating profits for the company.

    Analyst John Glass: "In addition to the lost profits from stores being temporarily closed, MCD is currently paying its staff and employees, as well as rent and other essential expenses in these markets. This results in ~$50M per month (5-6c per share) in additional expenses impacting the P&L."

    For FY22, Morgan Stanley assumed stores in Russia and Ukraine remain closed for the balance of the year, which will cost EPS about $0.28 per share from the $10.05 prior estimate. Over the long term, there could be impairment charges for MCD at some point if the company exits the countries, marks down the value of assets, sells them to a local owner, or in the worst case scenario, faces asset seizures.

    Morgan Stanley moved its price target on Overweight-rated MCD to $287 from $294 based on the new EPS estimates.

    Earlier this week: McDonald's is recommended at Oppenheimer with Russia-Ukraine risk already priced in.

    I don't know what they call "priced in."   $235 is $135Bn and they project $7.5Bn so a one-year war will hit them for $600M – about 10% of earnings and that would be the 20x line for them.  Add to that China and Europe with a bit more Covid and consider 2020 was $4.7Bn so there's $3Bn of play between Covid and not and I think it's still a bit risky.

    WRBY still doesn't make a profit:

    WRBY -5.41%Mar. 17, 2022 6:53 AM ET

    • Warby Parker press release (NYSE:WRBY): Q4 Non-GAAP EPS of -$0.08 beats by $0.01.
    • Revenue of $132.89M (+17.8% Y/Y) misses by $0.46M.
    • Active customers increased 21.5% to 2.20M.
    • Average revenue per customer increased 13.0% year over year to $246.
    • For FY2022, the company expects: Net revenue of $650M to $660M vs. consensus of $688.5M, representing growth 20% to 22% Y/Y; Adjusted EBITDA margin of approximately 5.6% to 6.6%; 40 new store openings bringing total store count to 201.

    That's the problem when you IPO at $6Bn for no apparent reason. 

    Submitted on 2022/01/26 at 12:57 pm

    WRBY/Nom – $4.5Bn with $600M in sales and $70M in losses is not one I'd want.  Growth is good and they'll get there one day but there are better things to buy.  BIRD is less than $2Bn with $273M in sales and $47M in losses so same thing.  

    SPY +0.08%Mar. 17, 2022 4:13 AM ET34 Comments

    The Federal Reserve kicked off its tightening cycle with an expected quarter-point hike and the stock and bond markets had different reactions.

    The FOMC hiked rates by a quarter point. That was expected, but the summary of economic projections took what many saw as a hawkish tilt, with the median forecast for rates to end 2022 at 1.9%, up from 0.9% in December, and the majority of Fed officials looking for seven hikes this year.

    Officials see rates at 2.8% at the end of 2023, up from 1.6% at the previous Fed meeting.

    Threading the needle: Stocks sold off right after the release of the statement and dot plot, with the S&P 500 (SP500) (NYSEARCA:SPY) dipping into negative territory. But they quickly resumed rally mode as Fed Chairman Jay Powell spoke, seemingly taking heart at him downplaying the possibility of recession.

    "Asset markets treated the FOMC statement and projections as unambiguously hawkish on release but reacted more positively as the press conference progressed," Standard Chartered strategist Steve Englander wrote. "Powell’s mention that the balance-sheet drawdown may be worth an extra hike and a comment on the easing of goods price inflation (however small) may have calmed market fears a bit."

    "We think the Fed is probably pleased with this reaction," he said. "Equity markets closed higher, suggesting that investors saw the Fed stance as threading the needle between tolerating inflation and threatening a major downturn."

    At the close, the S&P finished up more than 2%, with Nasdaq (COMP.IND) (QQQ) up more than 3% and the Dow (DJI) (DIA) more than 1.5% higher. Stock index futures are just slightly lower this morning.

    The S&P 500 is now up 4.4% in the last two sessions.

    "Don't ignore blasts of strength like this," LPL Financial strategist Ryan Detrick said.

    "Here are some other recent times stocks gained this much: Mar and Apr 2009, Aug 2011, Oct and Nov 2011, Dec 2014, Aug 2015, Dec 2018, Mar and Apr 2020," he tweeted. "These weren't times to be overly bearish going forward."

    Notably, stocks are coming off a correction in the broader market and a bear market among growth names. But this looks like a vote of confidence from the equity market that, after admitting it is behind the curve, the Fed won't overreact and slam the brakes too hard.

    While Powell definitely came out with a hawkish message, the U.S. economy looks less vulnerable to shocks and a possible recession than other global economies, Goldman Sachs economist Steffan Ball said on Bloomberg.

    Trouble with the curve: The Treasury market doesn't look too convinced that a soft landing is on the cards.

    Bonds followed a similar path as stocks yesterday afternoon, with prices plunging and yields spiking on the release of the statement, especially on the short end, then changing direction as Powell spoke.

    At the end of the press conference, the 2-year yield (NASDAQ:SHY) was up 5 basis points, while the 10-year yield (NYSEARCA:TBT) (NASDAQ:TLT) was lower.

    Still, that was further flattening of the yield curve and an inverted 2s-10s curve is generally considered a warning of an impending recession.

      

    The curve continues to flatten today, with the 2-year down 2 basis points to 1.95% and the 10-year down 3 basis points to 2.15%, putting the spread at 20 basis points.

    That is "a remarkably flat curve for the very beginning of the rate hiking cycle," ING economists said.

    "The 2yr went into the meeting at quite an aggressive discount versus the funds rate anyway, one reminiscent of rate hike cycles that were typical before the great financial crisis, when 50bp hikes were not unusual," ING added.

    Yesterday, the 5s-10s curve inverted for the first time since March 2020.

    On average, "it takes around three years from the first Fed hike to recession," Deutsche Bank's Jim Reid said. "However the bad news is that all but one of the recessions inside 37 months (essentially three years) occurred when the 2s10s curve inverted before the hiking cycle ended."

    "With all the recessions that started later than that, none of them had an inverted curve when the hiking cycle ended," he added. "In fact, hiking cycles that ended with the curve still in positive territory saw the next recession hit 53 months on average after the first rate hike, whereas the next recession for hiking cycles that ended with an inverted curve started on average in 23 months, so just under two years."

    "As a reminder, none of the US recessions in the last 70 years have occurred until the 2s10s has inverted. On average it takes 12-18 months from inversion to recession. The problem is that all but one of the hiking cycles in the last 70 years have seen a flatter 2s10s curve in the first year of hikes. The exception saw a very small steepening. So these are the risks."

    Grant Thornton economist Diane Swonk also noted that the Fed's inflation fight might bleed into the strong employment picture.

    "Reality has hit," she tweeted. "The Fed is now combating and chasing inflation and they are prepared to raise rates rapidly to do so. The only thing that doesn’t add up is their forecast for falling unemployment."

    SA contributor Hale Stewart has a technical take on the market reaction to the Fed.


  8. I gotta wait three years for the recession. That's bogus. In the meantime, GOEV and NKLA Jan23 calls.


  9. Earnings Portfolio Review:  $343,506 is up $33,673 in all this chop since our 2/17 review, mostly because PARA (was VIAC) turned up finally but there were contributions all around as we had a lot of improvements.  The strategy of the Earnings Portfolio is to take advantage of what we feel are negative over-reactions to earnings reports – especially on stocks we already feel are in value territory.  Once the trades are in place, we play them a lot like our Butterfly Plays, taking advantage of the moves within the channel.

    We were 2/3 cash but now closer to 1/2 cash as the positions gained a lot of value.  It's not a bad thing since we have SQQQ hedges in this portfolio as well – as it's meant to be self-contained.  

    • IBM – No worries there with a net $100 entry.    Waiting for the $9,875 to be free and clear.  

    • SQQQ 1 – Well, it was net $2.50 and now it's net $2.20 on the March spread and that's over.  The Jan $20/45 spread is doing much better but we have the cover of 80 2024 $40/50 spreads at the bottom so let's take 10 of the SQQQ Jan $20s off the table for $23.50 ($23,500) as it's only a $25 spread and we're well-covered with the 2024 spread.  

    Remember – if you're not going to sell high, when are you going to sell???

    • CROX – Pretty new at net $4,200 on the $60,000 spread and $125 isn't that crazy of a goal.  Even $100 would be net $35,0000 and $30,800 upside from here.  

    • GILD – We just rolled to a bigger spread and hopefully we finally found a bottom at $57.50.  Let's buy back the June $75s to free up the slot.   On the whole, it's a $45,000 spread at net $4,705 so $40,295 (856%) upside potential as a new trade – not bad…

    • GOLD – Breaks my heart to cover but it's the right thing to do.  We're in this spread for a credit so far so let's sell 10 of the Jan $30 calls for $1.65 ($1,650) and buy 10 2024 $20 ($6.80)/$30 ($3.20) bull call spreads for net $3.60 ($3,600) so we're spending net $1,550 to add another $10,000 of upside potential and all we did was cover the $23s, so they have $7,000 potential at $30 so $17,000 potential and we're currently at net $3,820 after the changes so $13,180 (345%) upside potential on this one.  

    • JACK – See, an over-reaction to their Nov earnings put them on our radar.  All good now at net $11,712 on the $30,000 spread so $18,288 (156%) upside potential at $100 in two years.  

    • PARA – BANG BANG BANG!!! It's still cheap!  We bought back the short Jan calls last month to get more aggressive and I'm fine with that.  The whole thing is net $30,425 and at $40 we get $60,000 + $10,000 but we'll sell short calls along the way for more income.  Even at just $70,000, that's $39,575 (130%) of upside potential.   I still say they get bought if they keep trading below $40.

    • PETS – Another one we got aggressive on and our timing was awesome last month.  At $35, it's a $40,000 spread and currently net $15,850 but we can sell the Jan $35s for $2.25 and that would be $9,000 and I'm confident we'll get at least that (hopefully for the $40s) when we sell so call it a speculative net $6,850 giving us $33,150 (483%) of upside potential if we can make it to $35 by Jan.  

    • SPWR – One of these days…  We're aggressive now and that's been great the past month.  Biden's got 2.5 more years so I can't think of any reason I don't want to be in a solar power company at the moment.  I don't think $30 is an outrageous target and the 2024 $25 calls are $6 so, if we can sell the $30s (now $4.50) for that price on a $5 move up, that would have us in for net $14,200 on the $80,000 spread with $65,800 (463%) upside potential.  BANG BANG BANG!!!

    • SQQQ2 – So here we have a $160,000 spread at net $8,050 so HUGE coverage on a 20% drop in the Nas that would give us $42 x 1.6 = $67.20 so yes, that all works out.  We have the 10 extra short Jan $45s from above and the 20 short Jan $55s we already sold so 30 out of 80 is covered – seems like nothing we can't work out of – especially as we're only in for net $8,050 so let's call our overall coverage $140,000 – allowing for some damage.  

    That's the key to a great hedge.  We can only lose our $8,050 (and we'd beat that with more short call sales and we already took a huge profit off the table on the other set) and that is very well-covered by the upside potential of $250,963, which is really good considering we only have $139,098 tied up in the positions.   


  10. Turning into another strong day.  This is why I can't find any positions to sell.

    NLKA/BDC – Canadian stocks?  What do you use to buy those?  

    As to the Recession – I'm pretty sure it's not going to take 3 year – one more stimulus and then we have to face reality.

    Interesting:

    Mar. 17, 2022 2:05 PM ET2 Comments

    • Four Senators introduced a bill Thursday to ban imports of Russian uranium.
    • Recent sanctions have restricted oil, natural gas and coal imports, but left the world's leading producer of enriched uranium free to trade with US utilities.
    • Russia's Rosatom accounts for ~35% of the world's enriched uranium supply, versus Rosneft (OTCPK:RNFTF) at ~4% of global oil supply.
    • The Sprott Physical Uranium Trust (OTCPK:SRUUF) is up ~4% on the news.
    • North American uranium producers (URA) are also trading higher, with Cameco (CCJ) +8%.
    • A Russian import ban, if passed, would come just as Cameco (CCJ) calls for the start of bullish contracting cycle.

    BDC called that on 2/16!   Along with a good list to consider.  

    LMND +16.84%Mar. 17, 2022 2:05 PM ET

    • Auto insurers stocks are gaining after Allstate's (ALL +3.3%) said its recent auto insurance rate increases translate to an annualized impact of $1.2B in gross written premiums.
    • Insurtech names Root (NASDAQ:ROOT +19.6%) and Lemonade (NYSE:LMND +16.7%), which is buying Metromile (MILE +16.8%), are rising the most of the group.
    • Also in its favor, Root (ROOTdisclosed that Daniel Rosenthal, its chief operating officer, chief revenue officer, and chief financial officer, acquired 100K shares at an average price of $1.5181 on March 14.
    • While not as big of a jump, Progressive (PGR) climbed 3.5% in midafternoon trading on Wednesday.
    • While Lemonade (LMND), Root (ROOT), and Metromile (MILE) stocks are surging today, the SA Quant rating flags all three stocks for danger of performing poorly as seen in this sample portfolio.

     

    PFE +1.99%Mar. 17, 2022 1:39 PM ET

    Medicines Patent Pool (MPP) announced on Thursday that nearly three dozen companies signed agreements to manufacture the generic versions of the oral COVID-19 therapy developed by Pfizer (NYSE:PFE).

    The sublicence agreements follow a voluntary licensing agreement signed by MPP and Pfizer (PFE) in November 2021 to serve medicines for countries home to about 53% of the global population, the United Nations-backed organization said.

    The deals will enable over 95 low- and middle-income countries to access the treatment, a combination of protease inhibitor nirmatrelvir and older antiviral ritonavir.

    Teva Pharmaceutical (TEVA) in Israel and Shanghai Fosun Pharmaceutical (OTCPK:SFOSF) in China are also included among 35 generic drugmakers selected for the production.

    Read: China recently added Pfizer’s (PFE) COVID-19 therapy branded as Paxlovid to its pandemic guidelines in response to an uptick in COVID-19 cases.

    ABNB +0.68%Mar. 17, 2022 1:32 PM ET1 Comment

    M Science reported a big burst of recent activity in the homeshare sector.

    Analyst Michael Erstad and team said the homeshare industry just had its strongest week on an absolute basis that M Science has seen.

    Spending on the homeshare industry was up by 67.6% compared to 2019 levels for the week ending on March 6. On an absolute basis, volume trends rose relative to the previous week, and were slightly below the all-time highs seen in June of 2019. Of note, average order value remains very elevated. "Strong AOV growth is likely stemming from a higher average daily rate and longer stays, observed M Science.

    Airbnb (NASDAQ:ABNB) is still the homeshare leader with 71.7% of the market.

    Meanwhile, Expedia Group's (NASDAQ:EXPE) VRBO’s market share decreased, with total share of 23.8% through the week ending on March 6. Vacasa (NASDAQ:VCSA) continued to make up a relatively small portion of the industry.

    Also of interest, Airbnb's (ABNB) cancellation rate for the week stood at 10.4%. While the cancellation rate was elevated for several weeks since mid-December, cancellations are observed to have tempered in recent weeks.

    Sector watch: These travel and leisure stocks are gaining because vacations are still a go

    C +0.56%Mar. 17, 2022 12:53 PM ET12 Comments

    • JPMorgan Chase (JPM +0.4%) has processed funds allocated for interest payments on dollar bonds held by the Russian government and transmitted the money to Citigroup (C +0.2%), Bloomberg reported, citing people familiar with the matter.
    • JPMorgan (NYSE:JPM) was the correspondent bank Russia used to send the payment to Citi (NYSE:C), which is acting as payment agent on the bonds, the people told Bloomberg. JPMorgan first sought and received the required approvals from U.S. authorities before forwarding the money to Citi.
    • Global investors are keeping a close eye on Russia's ability to make payments on its debt. The Russian Finance Ministry said it had ordered its correspondent bank to make a $117M interest payment on March 14. But so far, bondholders in Europe have had no sign of the funds, Bloomberg said.
    • With the raft of sanctions placed on Russia and its increased isolation from global markets, the odds of Russia defaulting on its debt have jumped. International Monetary Fund Director Kristalina Georgieva recently said she no longer considers a Russian default as improbable.

    ARKK +4.16%Mar. 17, 2022 12:19 PM ET49 Comments

    The bloodbath for Cathie Wood’s ARK Innovation ETF (NYSEARCA:ARKK) continues, despite the fund being up slightly on Thursday. Wood’s ETF is -36% YTD and is currently working towards its fifth straight downward month. Meanwhile, this week has been particularly difficult, as 23 of its 35 holdings fell to 52-week trading lows — about two-thirds of the total.

    This spiral has taken a heavy toll on some of ARKK’s biggest holdings. Eight of the stocks hitting yearly trading lows fall inside ARKK’s top 10 weighted positions, which have a combined representation of 42.6%. Additionally, some of ARKK’s holdings also plummeted to record trading lows as well, and some just missed yearly lows but hovered near them.

    Below is a list of the 23 stocks Wood and ARKK hold that have plunged to 52-week lows this week:

    (TDOC), (ROKU), (ZM), (COIN), (EXAS), (U), (TWLO), (PATH), (SPOT), (BEAM), (SHOP), (DKNG), (FATE), (PD), (TXG), (RBLX), (NVTA), (PACB), (VCYT), (SE), (DNA), (TWST), (TSP).

    As the first quarter of the year is approaching its conclusion, 34 of the 35 ARKK holdings sit in negative territory year-to-date. Signify Health, Inc. (SGFY) is the ETFs lone bright spot in 2022 as the stock is +23.6%. That said, the stock is down 24% over the past six months and -41.8% over a one-year period.

    ARKK’s worst-performing stock on the year is TuSimple Holdings, which is -66.1% in 2022 and holds a 0.90% weighting in ARKK. Furthermore, 30 of the 36 holdings are sub 20% this year as well.

    Below is a spreadsheet of ARKK and its year-to-date performance, along with each of its holdings in weighted order with their year-to-date performance. See also how Wood’s innovative fund matched up with the household QQQ ETF.


  11. OXY +8.64%Mar. 17, 2022 12:19 PM ET4 Comments

    Investors keyed into Warren Buffett's ongoing bet on the oil market in Thursday's midday trading, sending Occidental (NYSE:OXY) higher on news of an increased stake from Berkshire Hathaway (BRK.A)(BRK.B).

    Li-Cycle (LICY) was another major gainer in intraday action, pushed higher by strong earnings figures. Meanwhile, AeroVironment (AVAV) continued to push higher, as investors bet that its drones could be used in the defense of Ukraine.

    Elsewhere, Accenture (ACN) lost ground during the session, dragged down by earnings news. Investors worried that the Russia-Ukraine conflict could threaten the firm's otherwise rosy financial situation.

    Gainers

    Occidental (OXY) rallied almost 8% in midday trading on news that Warren Buffett's Berkshire Hathaway (BRK.A)(BRK.B) has raised its stake in the oil company. The investing vehicle for the world's fifth-richest person increased its total stake in OXY to about 14.6%.

    In a regulatory filing, Berkshire Hathaway disclosed that it has purchased 16.2M shares in the past week. This brings the firm's total OXY holdings to 136.4M shares.

    In other news, higher metal prices led to a massive revenue surge for Li-Cycle (LICY), sparking a nearly 8% midday advance in its stock. The battery recycling company said its revenue jumped 277%. At the same time, the firm reported a quarterly profit compared to a loss posted in the same period last year.

    Elsewhere in the market, AeroVironment (AVAV) added to its recent gains, climbing nearly 15% after posting a rally of almost 10% the previous day. The recent upswing followed news on Wednesday that the U.S. government is considering providing the firm's Switchblade killer drones to Ukraine.

    Decliner

    Accenture (ACN) edged down in intraday action following the release of its quarterly report. The company topped expectations with its latest results but warned that it could feel an impact from the Russia-Ukraine war.

    The company predicted full-year revenue growth of 24% to 26%. However, the firm raised concerns about the impact of the European conflict, saying its estimates don't include the prospect of a significant escalation of the clash or a major economic disruption caused by a broadening of its scope

    ADS -0.18%Mar. 17, 2022 11:57 AM ET

    Wolfe Research analyst Bill Carcache downgraded Capital One Financial (NYSE:COF -2.3%), Synchrony Financial (NYSE:SYF -2.4%), and Alliance Data Systems (NYSE:ADS -2.0%) to Peer Perform from Outperform as he grows "incrementally cautious on the low-end consumer."

    Russia's invasion of Ukraine has heightened concern about increased inflationary pressures on issuers with elevated exposure to low-end consumers. Risk-reward favors issuers more weighted toward prime and super-prime credit, chiefly American Express (AXP +2.4%) and Discover Financial (DFS -2.0%), both rated at Outperform.

    "Even if a peaceful settlement is reached, we see significant risk that higher commodity prices will continue to stoke inflationary pressures (especially if Russia remains isolated), translating into faster-than-previously expected credit normalization headwinds, particularly for issuers with outsized exposure to the low-end consumer," Carcache wrote in a note to clients.

    He also sees some longer-term risk for private label issuers from the Consumer Financial Protection Bureau's focus on late fees. "While we do not view the risk of any CFPB action on late fees as imminent, we do believe an eventual forced reduction in late fees is likely," he wrote. That's pertinent for Synchrony (SYF) and Alliance Data (ADS).

    GLD +0.62%Mar. 17, 2022 11:35 AM ET12 Comments

    Precious metals miners are in rally mode as precious metals and commodity prices surge, after Russia said reports of progress in negotiations with Ukraine are "wrong," and the dollar drops.

    April Comex gold (XAUUSD:CUR+2.1% at $1,949.60/oz, bouncing from four straight daily declines, and May silver (XAGUSD:CUR+4.1% at $25.74/oz, a day after losing 1.8%.

    Among major movers in the mining sector: NYSE:NGD +9.8%IAG +8.5%AG +6.6%SVM +6.6%SSRM +6.5%GORO +6%PAAS +4.9%AU +4.6%HMY +4.5%AUY +4.3%BTG +4.3%KGC +4.1%AGI +3.8%AEM +3.4%GOLD +3.4%.

    ETFs: NYSEARCA:GLDIAUNUGTPHYSNYSEARCA:GDXSLVSILSIVRPSLV

    The U.S. Federal Reserve's 25-basis point rate hike was in line with expectations and came against the backdrop of surging prices, so it did not hurt gold's appeal as an inflation hedge.

    The Fed's "meek" response to soaring inflation helped gold, GoldSilver Central's Brian Lan tells Reuters. "People will see that it is still good to hold gold because .25% doesn't even rock the boat."

    Supportive factors for gold "include geopolitical risks from the Russia/Ukraine conflict, still very negative real interest rates, and investors seeking shelter from higher interest rates and resulting in poor bond returns," U.S. Bank Wealth Management's Rob Haworth tells MarketWatch.

    Some commodity strategists such as Gold Newsletter editor Brien Lundin expect Fed rate hikes actually will prove bullish for gold, given that some previous rate hike cycles supported prices for the metal.

    Taking the opposite view, Kinesis Money's Rupert Rowling has said upcoming interest rate hikes are "putting a ceiling on gold, with its lack of yield making it less attractive in a climate of rising interest rates."

    MZDAY +1.69%Mar. 17, 2022 11:02 AM ET1 Comment

    • Due to supply-chain issues increased by the war in Ukraine, new passenger car registrations in the EU fell by 6.7% to 719,465 units in February 2022, followed by 6% decline in January.
    • The four major EU markets reported mixed results: Italy -22.6%, France -13.0% while Spain grew 6.6% and Germany +3.2%.
    • On YTD basis, new cars sales in the European Union declined by 6.4%.
    • “European auto demand was already tepid before Russia’s invasion of Ukraine led to production halts and components shortages that will further delay a recovery of European auto sales in 2022,” Bloomberg Intelligence analysts led by Michael Dean said in a note.
    • As Ukraine is a key source of wire harnesses that power automotive electrical systems, plant shutdowns in the country could lower European car production by as many as 700,000 vehicles in the first half, Colin Langan, an analyst at Wells Fargo & Co., said in a report this week.
    • Volkswagen (OTCPK:VWAGY) and BMW (OTCPK:BMWYY) have already stopped production at factories due to the supply disruption, while Mercedes-Benz AG has reduced output at a German factory..
    • Earlier this week, Volkswagen intimated that it will have to revise its outlook if it’s unable to get wire harnesses for more than three or four weeks.
    • European Union February registration -11.5% for Volkswagen (VWAGY), -19.5% for Stellantis (NYSE:STLA), -4% for Renault (OTC:RNSDF), +21.3% for Hyundai (OTCPK:HYMTF), -1.5% for BMW (BMWYY), +1.1% for Mercedes-Benz (OTCPK:DMLRY), -11.2% for Ford (NYSE:F), +3.1% for Toyota (NYSE:TM), +41.3% for Honda (NYSE:HMC), -14.2% for Volvo (OTCPK:VOLAF), -21.1% for Nissan (OTCPK:NSANY) and +0.4% for Mazda (OTCPK:MZDAY).
    • Past twelve months sales trend of the EU market:

    SAVE -3.09%Mar. 17, 2022 10:49 AM ET14 Comments

    Global airlines stocks gave back some of the gains they picked up over the last few session after the Kremlin denied that substantial progress had been made with diplomatic talks with Ukraine. That headline promoted a notable turn higher in oil prices.

    Decliners include Azul (AZUL -4.8%), Gol Linhas (GOL -4.8%), Copa Holdings (CPA -4.7%), Volaris (VLRS -4.4%), Ryanair (RYAAY -2.4%), China Southern Airlines (ZNH -2.6%), Deutsche Lufthansa (OTCQX:DLAKF -3.0%), easyJet (OTCQX:ESYJY -6.4%), International Consolidated Airlines Group, S.A (OTCPK:ICAGY -3.9%) and Japan Airlines (OTCPK:JAPSY -1.8%).

    U.S. airlines are also having a down day, led by Spirit Airlines (NYSE:SAVE -3.9%) and JetBlue Airways (JBLU -2.9%).

    UBS checked in on the airline sector with an eye on higher fuel costs. Analyst Myles Walton noted that lower oil prices in recent years haven't incentivized airlines to hedge and that the industry largely shifted away from the practice, including the big three of American Airlines Group (NASDAQ:AAL -2.0%), Delta Air Lines (NYSE:DAL -2.9%) and United Airlines (UAL). However, Alaska Air (ALK -2.1%) and Southwest Airlines (NYSE:LUV -2.1%) are the two exceptions with ~50% and ~65% of 2022 fuel consumption hedged, respectively. Walton noted that Delta doesn't hedge but they own the Monroe refinery, which is said to act as a modest natural hedge to higher jet fuel prices

    Very smart!

    We have DAL and ALK, LUV is interesting here as well.


  12. I own shares in PFE in some of my managed portfolios. What do you think about covering some of the shares .. selling 1/2023 55Cs at about $6.60.


  13. LUV has been a $50-$60 stock since 2016 and $42.63 is $25.5Bn.  They lost $3Bn in 2020 but pulled it together and made $1Bn last year and project just $670M this year but $2Bn next year.  I don't think the one loss is going to kill them and they hedge their fuel costs, which could give them an upside surprise this year.  During the year they were losing $3Bn, they bottomed out at $20 and held $25 after the initial scare so, for the LTP – let's sell 10 of the LUV 2024 $35 puts for $4.60 ($4,600) as that nets us in for a manageable $30.40 and we certainly don't mind owning them at that price.  


  14. Money Counter GIFs - Get the best GIF on GIPHYPFE/Nom – Well, if you own shares and have no cover – of course it's a good idea to generate some income.  At $54, they are paying a $1.60 (3.2%) dividend but you can sell the 2024 $52.50s for $8.70 which would be like getting called away at $57.50 AFTER collecting your dividends and, since those are so conservative, you could also sell the 2024 $40 puts for $3.20.  

    If you do that, you are putting $11.90 (22%) in your pocket now and, as long as you don't mind buying more shares at net ($52.50 – $8.70 – $3.70 =) $40.10, then why not?  If you are worried about committing to more on the put side – all the more reason you should sell more conservative calls, right?  You can also just sell the calls and only sell the puts if PFE drops back to $45, when you'd get much better pricing – maybe $5 for the short $40 puts.  

    Keep in mind it's not about "winning" or "losing" in this one cycle but, if you consistently collect an extra 20% every two years, will your overall portfolio performance likely be better or worse?  That's all we do with our generally dull portfolio plays – we just keep selling premium and we keep re-investing the cash and if PFE gets called away – we look for something on sale to replace it but that would still mean we made our 22% plus the $4 (7.5%) of our $57.50 payout – 29.5% is just fine for 2 years, isn't it?  


  15. Speaking of way too cheap, MRNA in danger of waking up.


  16. /NG double-tapped $5 so we're out again.



  17. Nas 4,100 at the close with /ES well over 4,320 so not likely to lose it tomorrow.