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Two Point 5 Percent Tuesday – Markets Tell Powell to Bring on those Higher Rates

"Nothing really matters, Anyone can see,

Nothing really matters,

Nothing really matters to me

Any way the wind blows" – Queen

Powell emphasized we have maybe two half-point hikes ahead of us and the market loves it this morning!

Yield curves are flat, which reliably predict every recession – gotta love that!  3.5M people have left Ukraine, causing a refugee crisis in the rest of the World – more love.  One-month anniversary of a war that's getting worse – love it.  Banks in China have seized $2Bn worth of Evergrande properties as that company continues to spiral down – lovin' it!  Miami Beach is under curfew in a State of Emergency – sping breakin' it!  Biden is warning of impending Russian Cyber Attacks on US Companies – who doesn't love that?  

Here are the two and 10-year notes as they race to oblivion.  Bond investors like to think their money is safe but the cash value of the 2-year notes have lost 4% in 6 months and the 10-year notes have dropped 12% in two years.  Yes, if you hold them to maturity you get all of your investment back plus all the promised interest – but that money buys 50% less gasoline, 20% less house, 40% less gold, 20% less food, etc.   Powell is promising much more of the same to the bond holders yet, this month, the US Government willl attempt to sell $250Bn worth of debt at the same stupid-low rates.   Something has to give at some point…


Meanwhile, since the markets don't seem to mind any of this stuff, for the first time since March 3rd we can take a look at our more bullish bounce chart.  The 20% Bounce Chart assumed the indexes would fall 20% and the Russell and the Nasdaq did but the Dow and the S&P remained resiliant BUT, unfortunately, still down 15% and, as of this morning – only the Dow is close to reclaiming the higher chart – which charts the retracements from the highs:

  • Dow  36,000 to 34,200 has bounce lines of 34,560 (weak) and 34,920 (strong) 
  • S&P 4,700 to 4,465 has bounce lines of 4,512 (weak) and 4,559 (strong) 
  • Nasdaq 16,500 to 15,675 has bounce lines of 15,840 (weak) and 16,005 (strong) 
  • Russell 2,400 to 2,080 has bounce lines of 2,144 (weak) and 2,208 (strong)

The S&P and the Russell are not to far away and that's AMAZING as these markets can apparently shake off any bad news.  Of course, to some extent, Inflation feeds the market as higher prices end up being higher profits and, as the buying power of the Dollar decreases, the commodity cost of the stock itself rises – so you simply need more Dollars to buy the same stocks.  

Take, for example, our Money Talk Portfolio, which we reviewed last Tuesday and, because we only make changes right on the show, not a thing was touched but look what happened to the positions in just seven days.  Last week, we were at $240,929 – up 140.9%:

Now, just 7 days later, those same positions are at $270,748 – up 170.1% and up $29,162 (29.2%) for the week.  That's just silly, isn't it? 

This is why we are loathe to let go of our long positions in this kind of environment – scary though it may be.  The market is like a water-ballon race and we're just betting the balloon will get bigger before it pops.  When it does pop, we have our Short-Term Portfolio, which is holding up well so far and carries about $1M of downside hedges (see last week's STP Review for details).    

As the LTP grows, we generally take about 1/3 of our unrealized gains and push them into improving our hedges – just in case.  At the moment, the market is pretty much ignoring all the bad news.  Natural Gas (/NG) popped back over $5 this morning and Oil (/CL) is down from $113 but still $110 yet equities are up about 1%.  When the market is down, these are all the same reasons they point to, aren't they?  We've seen this behavior before – right before the last two crashes.  Will it matter this time?  


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  1. Phil – How long does the inflation story keep stock elevated with the 10 year approaching 2.5% and the indices div yield probably declining below 2%? Thanks.

  2. Good Morning.

  3. Good morning

  4. Wow, the JPY/USD rates are blasting past 120.   I would think this would be good for TM, HMC, SONY etc. granted inflation doesn't take eat up all their profits.

  5. Good morning!

    How Long/Seer – I don't know, does this help?

    Yes, Rising Inflation Is Bad For Stocks | Seeking Alpha

    Seriously, it didn't help me but it's a good chart.  The reason there's no answer is globalization – the S&P 500 gets 60% of their revenues from overseas so it's hard for any single factor to take them down.  As I ALWAYS emphasize – buying Blue Chip stocks when they are undervalued is the best way to protect yourself in any sort of market conditions – as long as you can afford to hold on through the downturns (hence the hedges).  

    The thing about US Equities is they are still the best of a bunch of bad choice investments.  Crypto is idiotic, Housing and Commodities are too high in their channels, Bonds are on a suicide race to the bottom, Cash is losing its value.  Doesn't leave much choice for investors and imagine how much of the recent market boost is Russian money looking for a place to hide.  As we learned (still learning) from the Panama papers, it will take years to figure out where this money is actually coming from and, by then, they will have moved it ten more times.  

    That's why you can't get too hung up on logic and just stick to watching the Bounce Charts – that's why we got a bit more bullish last week in our Portfolio Reviews - despite my overall economic misgivings. 

    Japan/Kinki – That's what I mean – everything is good for someone.

    Still, they have to buy parts from overseas so not a slam-dunk for Japanese companies.  

    Kill Bill Japanese Steel GIF - Kill Bill Japanese Steel The Bride -  Discover & Share GIFs

  6. with this cyber attack speak a trader bought 3800  April CIBR  ( the ETF )  $50 calls for about $2.00 to $2.15 

    also saw a massive buy of PARA Sept $45 calls .   Thats one I hope works out for somebody 

  7. Phil/TZA I need another 100k of hedge. I have some 20/40 and 20/50. What would you suggest now. TIA

  8. The heads begin to roll in Russia

  9. ICYMI: Republicans Heart Russia

  10. Phil – UL in the butterfly portfolio – does it make sense to roll the 2024 $50s down to $40? 

  11. Phil / AMZN – shooting up in the last week…

  12. Wow, BA almost fully recovered from yesterday's drop.

    CIBR/Stock – That was smart.

    PARA testing $37 and above the channel finally.

    TZA/Stuart – Going so deep in the money really isn't necessary and going so wide is very expensive too.  A hedge should pay you if the market goes down and stays down – it's not there to make your portfolio look pretty unless you have some margin issues you are covering – in which case raising more CASH!!! is more important than adding more hedges.   As such, I like our TZA spread but it's a bit low in the channel for a short call sale at the moment:

    TZA Long Call 2024 19-JAN 30.00 CALL [TZA @ $30.53 $-0.58] 400 1/7/2022 (668) $526,800 $13.17 $-0.92     $12.25 $-1.00 $-36,800 -7.0% $490,000
    TZA Short Call 2024 19-JAN 45.00 CALL [TZA @ $30.53 $-0.58] -400 1/7/2022 (668) $-442,000 $11.05 $-1.23     $9.83 - $49,000 11.1% $-393,000
    TZA Short Call 2022 14-APR 40.00 CALL [TZA @ $30.53 $-0.58] -50 1/18/2022 (23) $-15,000 $3.00 $-2.33     $0.67 $-0.25 $11,650 77.7% $-3,350

    The heart of it is the 2024 $30/45 bull call spread at net $2.42 on the $15 spread that's at the money.  Because the spread is way out in 2024 and the 2 legs have similar deltas – this will not make you feel good in the short run but you get $150,000 worth of coverage for $24,200 (100 contracts) and you are $5,300 in the money.  The July $40 calls can be sold for $3.30 (not yet!) so even just selling 20 of them (1/5) puts $6,600 back in your pocket using 115 of 668 days you have to sell.  5 more sales and you have a net profit on the hedge – free coverage.  

    That's what makes TZA such a good hedge for us – the ability to pay it back into our CASH!!! pile over time – something we also do with our SQQQs.  The hedges are there to avert a long-term catastrophe, not to keep us neutral in a short-term dip.

    RUT be crazy this morning:

    UL/Rn – We only had it a month and already you want to change it?  In the Butterfly Portfolio the long spread is not so much an investment as a backstop to the short calls we sell and, as a rule of thumb, I hate to put more money into a spread if I can avoid it.  When we sell more calls and puts and they generate more money – THEN I might want to put some into a roll or IFF the position has gotten to a point where the coverage is no longer adequate to sell more calls.  We came in around $51 and it's now $45.50 but all that means is the May $55 calls we sold will likely pay us $1,150 – essentially they already have. 

    If I had no faith they'd bounce back – then I would sell the Aug $45 calls for $2.80 ($2,800) and then we have $3,950 to roll with and the 2024 $40 calls are $8.30 vs $3.30 so ($10,000) to make that roll but why spend it when the original spread was net $3,525 and the first set of short calls already worked so, I can either sell 10 Aug $50s for $1 ($1,000) and get paid 28% for 150 days or I can spend $6,050 (almost 200% of our investment) to do the unnecessary roll, which will push our break-even point back about 6 months.  

    Not only that but UL has broken the rule of being a good Butterfly and has moved almost 20% in a month – that makes it hard to bet on so it should certainly redeem itself first before we throw more money at it.

    AMZN/Batman – Positive W forming over there.

    Speaking of shooting up.  Another little channel-breaker for us:  

    Alibaba surprised us with a massive new $25B stock repurchase authorization. The company even emphasized that it's "the largest ever buyback undertaken of a Chinese internet stock."

    We think Alibaba believes that the worst is over for Chinese tech stocks. It's ready to deploy even more of its massive $78B cash horde to repurchase its stock on the cheap.

    Alibaba has instituted two large stock repurchase programs since its stock's dramatic decline in late 2020. However, the current and third program easily surpassed its previous $10B and $15B authorization as management went on the offensive. Deputy CFO Toby Xu emphasized: "The upsized share buyback underscores our confidence in Alibaba's long-term, sustainable growth potential and value creation."

    Alibaba's new program runs through March 2024 and replaced the previous $15B authorization. 

    China's State Council's sent a clear intervening message to the market that it will "actively introduce policies that benefit markets." That has helped to stem the worsening malaise, which resulted in what we believe was a capitulation. Several financial institutions like JPMorgan (JPM) highlighted that Chinese stocks are "uninvestable." It had undoubtedly triggered significant risk aversion among global institutional investors. Caixin reported (edited):

    Some institutional investors are dumping them all once the companies made into the provisional delisting list, as managers of pension funds, university endowments, and mutual funds are prudent to avoid risky assets. - Caixin


    However, the world's largest asset manager Blackrock followed up with a note to clients highlighting that (edited): "Hong Kong-traded stocks have become 'extremely attractive' after recent declines. In a crisis, some valuations can reach levels previously not thought possible" Notably, the asset manager had slashed its holdings in Chinese stocks in 2021, such as (JD). Therefore, a vote of confidence from Blackrock is undoubtedly in the right direction.

    Furthermore, Bloomberg reported that "China's government said it will step up policy support for the economy and capital market." It's the first clear indication that China was ready to introduce targeted monetary policy moves to shore up the demand-side equation of the economy since its message last week. Notably, China's State Council "called for the adoption of monetary policy tools to sustain credit expansion at a stable pace. The authorities also promised to maintain policies that can support the economy and avoid measures that can hurt sentiment in the capital market."

  13. Phil/TZA That's why I asked to get your expert opinion. Thanks

  14. Maserati reveals its first electric SUV

  15. Japan’s Power Crisis Was a Decade in Making and Won’t Go Away

  16. You're welcome Stuart, good opportunity for a teaching moment…

    Damn, they are only now figuring this out?

    CGC +2.21%Mar. 22, 2022 2:04 PM ET2 Comments

    • Canopy Growth (NASDAQ:CGC) said a six-month trial testing the effects of cannabidiol (CBD) showed it significantly reduced menstrual-related symptoms.
    • The company said the study, completed in collaboration with James Madison University, revealed new ways to address menstrual-related symptoms with cannabis.
    • About 40 individuals were randomized to receive 160 mg or 320 mg of CBD, in divided doses twice daily for 5 days every month on the onset of symptoms.
    • The higher dose was also effective in significantly reducing irritability and stress over the same period, the company said.
    • Shares (CGC +1.2%)

    CVX -0.35%Mar. 22, 2022 1:54 PM ET5 Comments

    Chevron (CVX -0.2%) officials have been pressing the Biden administration for months to ease sanctions against Venezuela so the company could boost production in the country, but now it is receiving a much more positive reception, the Wall Street Journal reports.

    According to the report, Chevron (NYSE:CVX) CEO Mike Wirth has offered the company's help to Secretary of Energy Jennifer Granholm in shoring up U.S. energy supplies by ramping up production in Venezuela, saying it can help double Venezuela's 800K bbl/day production within months, which could replace the loss of 700K bbl/day the U.S. was importing from Russia before the invasion of Ukraine while also possibly lowering gasoline prices in an election year.

    Shortly after Wirth talked to Granholm, three senior U.S. officials – Juan Gonzalez, the senior National Security Council official in charge of Latin America; James Story, the U.S. ambassador to Venezuela; and Roger D. Carstens, a special envoy – flew to Caracas and met with President Maduro and other top Venezuelan officials, WSJ says.

    The White House's official line is that there is no dialogue between the U.S. and the Maduro government.

    Chevron wrote down all its Venezuelan assets in 2020, taking a charge of $2.6B, yet it has maintained a presence in the country, receiving periodic licenses from the U.S. government to retain but not operate assets.

    JPM +1.85%Mar. 22, 2022 1:48 PM ET

    • Russia has made a coupon payment on a sovereign bond maturing in 2029, with correspondent bank JPMorgan Chase (JPM +2.4%) processing the $66M payment, Reuters reported, citing a person familiar with the situation.
    • It's the second time in the past week that the country has avoided default, which would have been its first since a 1998 crisis and its first on international bonds since the nation's 1917 revolution. Russia has 15 international bonds outstanding with a face value of ~$40B, Reuters said.
    • JPMorgan (JPM) worked with the U.S. Treasury Department to get the required approvals, Reuters said.
    • The country has even bigger payments coming up with a $102M payment due on March 28, $447M on March 31, and repayment of $2B in principal due on April 4, the newswire said.
    • Last week (March 18), Russia paid interest on dollar bonds, finance minister says
    • Ukraine War Update: Zelenskyy says meeting Putin in necessary

    OXY -1.30%Mar. 22, 2022 1:38 PM ET14 Comments

    Occidental Petroleum (OXY -1.3%) says it reached an agreement to sell the first "net-zero oil" to South Korea's SK Trading from its planned large-scale direct air capture facility in the Permian Basin that should be up and running by late 2024.

    The company says the amount of carbon removed from the atmosphere through its planned DAC facility will be enough to offset all the emissions associated with crude's life cycle from extraction to consumption.

    Under the deal, SK Trading will be offered an option to buy as much as 200K bbl/year of the oil for five years, which it will then convert into net-zero products such as lower-carbon aviation fuel.

    Occidental (NYSE:OXY) says net-zero oil – which is compatible with existing refinery infrastructure – can help hard-to-abate industries advance their net-zero commitments by providing an affordable, scalable fuel option that does not contribute to additional atmospheric carbon dioxide.

    Occidental recently agreed to sell 400K metric tons of emissions-offsetting carbon removal credits from the planned DAC facility to planemaker Airbus.

    GME +30.93%Mar. 22, 2022 1:31 PM ET21 Comments

    Shares of GameStop (NYSE:GME+27% are rallying sharply Tuesday without a clear catalyst, reminiscent of the moves at the height of meme stock trading a year ago.

    Shares are looking at a sixth-straight session of gains and have erased all the losses seen this month. The stock raced above the 50-day simple moving average today.

    GME has more than 400 mentions on the WallStreetBets subreddit, up from 115 yesterday, according to Quiver Quantitative, which also noted nearly 800K off-exchange short sales on Monday.

    Short interest is about 18%, well below levels when GME saw short squeezes. But market watchers have noted a pickup in out-of-the-money call buying, which could be producing a gamma squeeze effect. In a gamma squeeze, call writers buy the underlying shares, increasing demand and boosting the price.

    Seeking Alpha contributor and GME bear John Miller wrote today that "despite the ugly headline earnings loss, the recently announced holiday quarter results had the best news for the company's operating fundamentals since the announcement of the strategic partnership with Microsoft in 2020."

    AZN +0.09%Mar. 22, 2022 12:59 PM ET10 Comments

    According to the latest estimates from the U.S. Centers for Disease Control and Prevention (CDC), the newly identified BA.2 Omicron sub-variant has accounted for more than a third of all COVID-19 cases in the U.S.

    The sequencing data for the week ending March 19 indicate that the prevalence of the subvariant has risen to nearly 35% from ~22% a week ago after the figure was revised down from ~23%. Meanwhile, other Omicron variants, BA.1.1 and BA.1.1.529, are estimated to account for about 57% and 8% of circulating variants, according to CDC.

    On Sunday, White House chief medical advisor Dr. Anthony Fauci said on ABC’s “This Week” that BA.2 is about 50% – 60% more contagious than the Omicron, but it is unlikely to cause severe disease.

    “It does have increased transmission capability,” he said, adding, “however, when you look at the cases, they do not appear to be any more severe and they do not appear to evade immune responses either from vaccines or prior infections.”

    BA.2 can outcompete other variants to become dominant in the U.S, Fauci said, warning about “an uptick in cases” fueled by the subvariant, but unlike the sharp increases seen with other variants.

    As of last Saturday, the seven-day moving average of COVID-19 cases in the U.S. stood at 27,747, nearly 18% lower than a week ago, Reuters reported.

    On Monday, AstraZeneca (NASDAQ:AZN) disclosed pre-clinical data to indicate the potential of its COVID-19 antibody therapy, Evusheld against BA.2.

    Recent studies suggested that BA.2 is resistant to nearly all monoclonal antibodies developed against COVID-19, including sotrovimab from GlaxoSmithKline (NYSE:GSK) and Vir Biotechnology (NASDAQ:VIR).

    The variant made up nearly 12% of all COVID-19 cases in the U.S., according to CDC estimates early this month.

  17. That's $6Bn with $140M in sales and a $200M loss, unfortunately.

  18. INMD     this company looks interesting in medical esthetics if we weren't facing a recession.  Something like a 2024 $40 / 50 bcs and selling the $25 puts for a net credit ?                 recent earnings report 

  19. INMD  noticed they have $5 share in cash and no debt.   Also their new Enpower RF division is not esthetics, but for female incontinence and other issues, which is a huge market.  

  20. INMD/Stock – Sounds interesting and just $3.3Bn at $41 with 20% growth:

    Year End 31st Dec 2016 2017 2018 2019 2020 2021 2022E 2023E CAGR / Avg
    Total Revenue

    23.1 53.5 100 156 206 358 424 491 73.0%
    Operating Profit

    0.669 8.95 23.5 59.6 72.8 167     202%
    Net Profit

    0.336 8.82 22.4 61.1 75.0 165 181 207 245%
    EPS Reported

    0.005 0.132 0.350 0.803 0.891 1.92     225%
    EPS Normalised

    0.005 0.132 0.469 0.803 0.891 1.92 2.09 2.39 225%
    EPS Growth

      +2,403 +256 +71.4 +10.9 +115 +8.87 +14.4  
    PE Ratio

              20.8 19.1 16.7  

              2.35 1.33 0.948  

    I'd like to find out why people bailed on them last fall but looks really attractive.

    geographical sales break down for InMode

    In the earnings call, management pointed out that supply chain issues are likely to persist and might become worse in 2022. Due to the pandemic-induced shock, we seem to move, if we are not already in the midst of it, towards a secular era of too low supply (coming from an era of too low demand)

    The INMD 2024 $35 puts can be sold for $10 – no reason not to sell 5 of those for $5,000 in our Future is Now Portfolio to remind us to keep an eye on them.

  21. Good morning, everyone. Here is the link to today's webinar.