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Weakening Wednesday – Indexes Dip as Mortgage Rates Top 5%

Home mortgage rates skyrocket 24% in the fastest four week increase in  history | Fortune5% Mortgages are back.

30-year notes have dipped from 190 in 2020 to 145 this morning and that's down 23.6% in two years – horrific losses for the long-term bond market but what sort of idiot was lending the Government money for 30 years at 1.25% anyway?  Now it's 2.666% but this is just the start of the Fed's tightening cycle with another 2% (at least) to go in the next 8 months and already 30-year mortages are being priced over 5%, up from 3.5% in 2020, with lows all the way down at 2.5% briefly.

And look how fast rates have climbed in 2022 – this is why home-buying has ground to a halt.  A $500,000 home with a $400,000 mortgage (assuming you have $100,000 to put down) cost you $1,686 a month at 3% in the Fall but now, in April, it's costing you $2,147 a month – an increase of $461/month (27.3%) in just one quarter.  Even if you have a $100,000 job and just got a 10% raise, the take-home is only going to be +$6,000/yr to pay the extra $5,532 so you'd better hope nothing else went up in price or you'll have to cut back on other things.  

Of course, once upon a time, we used to EXPECT 10% raises every year so we would stretch on a Mortgage because, after a few 10% raises, $2,147/month would seem like a fantastic bargain – especially if your home's value were also rising 10%, as the leverage you have on your home would make you a winner.  That's how our parents were able to retire pretty comfortably but that Social Contract collapsed in 2008.  

Close to 70% of the people in America owned homes in 2004 but that number has dropped to 65.5% now and that is putting upward pressure on the rental market, where prices have climbed 20% in the past 12 months.  In large part, that's due to a surge of people losing their homes during Covid as ownership plunged from 68 to where we are now.  You would think 5% is unaffordable but it's only sticker shock as we've gotten used to new rates.  I bought a home in 1998 and was very happy with my 6.7% morgage at the time and my Dad bought a house in 1978 with an 8.8% mortgage and we were lucky to get it before the rates really started going up – to 11% in 1979, 15% in 1980 and topping out at 18% in 1981 but they were still 10% in 1987 (and the markets collapsed).

These things are all relative and you can learn to live with anything but it's an uncomfortable adjustment period, to say the least.  We also had gas rationing in 1980 and prices were skyrocketing from 0.60 when I got my license in 1978 to $1.35 when I went to college in 1981 – that was shocking and they never went much below $1 again.  Anyway, the point is we had inflation, rising gas prices, rising rates and the World did not end – even with Reagan and the Russians squaring off weekly.

Investors and consumers can indeed get used to anything.  When I was a kid, my older brothers had draft cards – on any given weekend their "number would come up" and they could be shipped off to Vietnam to run around the jungles killing people and 2M people died over there, including over 60,000 US Troops and people were marching and protesting and talking about it all the time yet we just went through 2 years where 1M Americans died of Covid and look how used to that we got!  The markets even rallied…

This is not to say we should ignore the weakness – just that we are very well-hedged from last Thursday's Short-Term Portfolio (STP) Review and I'd still rather keep the longs than dump them as – This too shall pass (hopefully).  Meanwhile, our protection is working great and the STP is up $49,375 on this little dip:

The S&P 500 is down 120 points (2.6%) since last Thursday and our STP is supposed to give us $1.5M on a 20% correction but, of course, that's if things go down and stay down – we're not expecting an immediate pay-off.   $50,000 is about right for 2.5% and if we pick up a quick $500,000 on a 20% drop and the rest comes over time – we can certainly work with that but we'll also be adding some more immediate pay-off hedges along the way if we fall back into our 20% correction zone – which we are once again skirting (see yesterday's Live Member Chat Room for my notes).

Speaking of fun shorts.  TSLA has gotten ridiculous again and I'm worried they won't make $1,200 so our short for the STP will be:

  • Sell 2 TSLA July $1,200 calls for $87 ($17,400) 
  • Buy 5 TSLA Jan $1,000 puts for $175 ($87,500) 
  • Sell 5 TSLA Jan $900 puts for $128 ($64,000) 

That's net $6,100 on the $50,000 spread so as long as we're under $1,200 – it's a very good risk/reward ratio with a potential upside of $43,900 (719%) if TSLA finishes the year below $900.  We can also sell some short-term puts along the way – but not when they are this stupidly high.

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  1. Good Morning.

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

  3. Russia’s failure to take down Kyiv was a defeat for the ages

  4. Good morning!

    We knew there was still selling pressure from yesterday's close – what matters is where we stop.

    LNG +1.41%Apr. 06, 2022 10:14 AM ET5 Comments

    • Blackrock's (BLKweekly market commentary note focused on the drive for energy security; the asset manager calculates Europe will spend 9.1% of GDP on energy in 2022, the highest share of GDP since 1981:
    • Blackrock (BLK) sees energy costs increasing inflation and hurting growth in the short term; noting that additional US fossil fuels will be needed to alleviate price pressure.
    • Though the note says, "the drive for energy security should reinforce the transition to net-zero."
    • The difficulty in marrying higher fossil fuel supplies now, with lower supplies in the future, may become apparent as US LNG producers like Tellurian (TELL) look to sign long-term contracts with European customers.
    • Coal production expansion also requires capital investment and visibility on future demand, suggesting US producers like Peabody (BTU), CONSOL (CEIX) and Alliance (ARLP) will be unlikely to expand operations in exchange for 1-2yr supply commitments.
    • As Cheniere (LNG) recently noted, there are no easy solutions for Europe's current energy supply problems; however, doubling down on net zero in 2022, is likely to ensure continued under-investment in fossil fuels for years to come.

    Apr. 06, 2022 9:50 AM ET7 Comments

    "Inflation is running far too high, and I am acutely concerned about this," Philadelphia Fed President Patrick Harker said Wednesday in an online speech sponsored by the Delaware State Chamber of Commerce. As inflation stays elevated, people's expectations may also jump, he said.

    "The bottom line is that generous fiscal policies, supply chain disruptions, and accommodative monetary policy have pushed inflation far higher than I — and my colleagues on the FOMC — are comfortable with. I'm also worried that inflation expectations could become unmoored," he said.

    To combat inflation, "I expect a series of deliberate, methodical hikes as the year continues and the data evolve," he said. "I also anticipate that we will begin to reduce our holdings of Treasury securities, agency debt, and mortgage-backed securities soon," though he didn't say how soon.

    With the removal of pandemic support, tightening monetary conditions, and the war in Ukraine pressuring commodity prices, Harker expects growth to moderate this year and estimates GDP growth of 3%-3.5% this year before falling to 2.0%-2.5% in the next couple of years.

    He expects inflation to start to taper this year, but remaining elevated at ~4% for 2022.

    "All of these forecasts are weighted with uncertainty — a lot of uncertainty," he said.

    Update at 9:55 AM ET: With the conflict in Ukraine, energy prices aren't likely to come down anytime soon, Harker said. "It's going to fluctuate for while until supply straightens out."

    On Tuesday, the Fed's Lael Brainard said the central bank policymakers may start shrinking its balance sheet in May.

    AAPL -2.26%Apr. 06, 2022 9:34 AM ET9 Comments

    Teenagers looking to buy their first Apple (NASDAQ:AAPL) iPhone is near a record high, according to investment firm Piper Sandler's latest survey.

    Analyst Harsh Kumar, who rates Apple overweight with a $200 price target, noted that 87% of teens surveyed intend to buy an iPhone. Additionally, 87% of teens surveyed already own an iPhone.

    "We view the elevated penetration and intention are important for a maturing premium smartphone market," Kumar wrote in a note to clients.

    Although the 87% figures for both ownership and intent are high, teens who said their next phone would be an iPhone is down 3% from the Spring 2021 survey and ownership fell 1% from 88% from the Spring survey.

    Apple (AAPL) shares fell slightly less than 1.5% to $172.58 in premarket trading on Wednesday.

    In addition, Kumar noted that the trends are "encouraging" as Apple continues to introduce new 5G iPhones, including the iPhone SE, which was announced last month.

    The survey also found that Apple Pay has surpassed PayPal's (PYPL) Venmo and the PayPal app as their favorite money transfer app.

    More than 7,100 teenagers with an average age of 16.2 years were surveyed across 44 states. The teenagers belong to a household with an average yearly income of $69,298 and 39% of them are part-time employed.

    Kumar explained that the positive trends from the survey are likely to help growth in Apple's services, such as Apple Music and Apple TV+, "as the install base for Apple hardware continues to grow."

    On Monday, investment firm UBS said that Apple's (AAPLservices are increasingly becoming a "key differentiator" for the tech giant.

    BTC-USD -3.42%Apr. 06, 2022 9:34 AM ET3 Comments

    ProFunds intends to bring the Short Bitcoin Strategy ProFund fund to the market, an investment vehicle meant to short Bitcoin (BTC-USD) inside a market-wrapped fund.

    ProFunds filed with the U.S. Securities and Exchange Commission to create the fund, which plans to offer a -1X inverse return of the CME Bitcoin Futures Contracts for a single day.

    According to the prospectus, the fund will not directly hold Bitcoin but rather trade the cryptocurrency through managed futures contracts.

    This structure is similar to the popular Proshares Bitcoin Strategy ETF (NYSEARCA:BITO), Valkyrie Bitcoin Strategy ETF (NASDAQ:BTF), and the VanEck Bitcoin Strategy ETF (BATS:XBTF). However, the new short fund will operate in an inverse fashion.

    Before there was a Bitcoin Strategy ETF on the market, ProFunds launched the Bitcoin Strategy ProFund (BTCFX), which delivered exposure through a mutual fund format, and was the markets first fund that offered this type of exposure.

    ProShares looks to break another barrier with its latest filing. At the moment, the market does not have an ETF or fund to short Bitcoin through a fund-based wrapper.

    Bitcoin currently trades at $44,940 and has slid 3.2% in Wednesday's early action. Moreover, the cryptocurrency finds itself -5.1% YTD. While it remains down for 2022 as a whole, Bitcoin has improved significantly lately, after being down at one point 30% in late January.

    Bitcoin and a slew of other cryptocurrencies are trading in the red on Wednesday morning, as U.S. Treasury yields spike ahead of the release of the minutes of the last Federal Reserve policy meeting. That report is scheduled to come out at 2:00 p.m. ET.

    TSLA -4.62%Apr. 06, 2022 8:55 AM ET25 Comments

    Tesla (NASDAQ:TSLA) told some suppliers and workers that the Shanghai factory will remain in lockdown until at least April 8 due to soaring COVID cases in the region.

    The Shanghai Gigafactory has been closed for production since March 28. Adding in a separate a two-day shutdown in March, Tesla (TSLA) has now lost 12 days of vehicle production in recent weeks including a recent holiday.

    Bloomberg reported that much-needed semiconductors are piling up at manufacturers amid a shortage of truck drivers. That slowdown outside of the Gigafactory is not likely to ease quickly.

    Amid soaring COVID cases, Chinese authorities extended a lockdown in Shanghai to cover all 26 million residents in a development that is seen as a test of how far the zero-tolerance COVID policy can go in the nation. "Shanghai's epidemic prevention and control is at the most difficult and most critical stage," warned a Chinese health official. A high percentage of the cases in Shanghai over the last few days were reported as asymptomatic.

    Shares of Tesla (TSLA) fell 2.47% premarket to $1,064.28 after falling 4.73% on Tuesday.

    Read Seeking Alpha author Victor Dergunov's latest breakdown on Tesla.

  5. BTC-USD -3.18%Apr. 06, 2022 8:52 AM ET2 Comments

    Bitcoin (BTC-USD), ethereum (ETH-USD) and a slew of cryptocurrencies are trading in the red Wednesday morning, as U.S. Treasury yields spike ahead of the Federal Open Market Committee's meeting scheduled at 2:00 p.m. ET.

    Specifically, bitcoin (BTC-USD -4.2%) is sliding back under its $45K key level, recently changing hands at $44.7K, though still elevated by 15.5% M/M. Ethereum (ETH-USD -5.7%) is drifting down to $3.3K per token but +30% M/M.

    U.S. stocks are also experiencing selling pressure in premarket trading, with all three major stock market index futures pointing to a weaker open. Meanwhile, the 10-year U.S. Treasury yield (TLT) is extending massive gains to 2.62%, the highest since mid-2019. This comes as the Fed minutes are expected to reveal details on balance sheet runoff; Fed Governor Lael Brainard on Tuesday pivoted to a more hawkish stance, saying the balance sheet reduction could start "at a rapid pace as soon as" the FOMC's May meeting.

    "Another big leg up for #gold and #bitcoin will likely occur when real yields stop rising," Jeroan Blokland, founder and head of research at True Insights, wrote in a Twitter post, adding "we are not there yet." Amid Fed tightening, geopolitical tensions and inflationary pressures, Gold (XAUUSD:CUR) is clearly outpacing both BTC and the stock market (SP500) YTD as seen in the chart below.

    For company-specific news, Worldpay from Fidelity National Information Services (FIS) will offer merchants the ability to receive settlement directly in USD Coin (USDC-USD), the second largest stablecoin by market cap. Note that stablecoins are digital tokens pegged to a more stable asset, such as the U.S. dollar, and can be redeemed one-to-one.

    “Cryptocurrencies, for the most part, tend to be quite volatile and lack the ability to redeem at a predictable exchange rate in large quantities. That is why USDC is so popular among consumers who use crypto exchanges, and why it is so appealing to traditional merchants and other corporates,” said Nabil Manji, SVP, head of Crypto and Web3 at Worldpay from FIS. “By making it easier and more efficient for crypto-native companies and other corporates to receive and manage stablecoins, this will further drive corporate innovation in payments and benefit the consumer ecosystem.”


    Spirit Airlines (SAVE) ticked lower in pre-market trading after a massive surge the day before, as investors continue to digest a takeover offer from JetBlue (JBLU).

    SAVE spiked just before the close of trading on Tuesday, finishing the session higher by more than 22%. The rally followed confirmation that JBLU had offered to acquire the low-cost airline for $33 per share, or around $3.6B.

    SAVE dipped about 4% in Wednesday's pre-market action, amid some concerns about the merger, including possible pushback from regulators. With the move, SAVE traded at around $26 before the opening bell.

    Move along folks nothing to see here:

    LVS -3.46%Apr. 06, 2022 8:40 AM ET1 Comment

    Soaring COVID cases in Shanghai has put another pall over the Macau casino sector.

    Chinese authorities extended a lockdown in Shanghai to cover all 26 million residents in a development that is seen as a test of how far the zero-tolerance COVID policy can go in the nation.

    "Shanghai's epidemic prevention and control is at the most difficult and most critical stage," warned a Chinese health official.

    A high percentage of the cases in Shanghai over the last few days were reported as asymptomatic.

    COVID cases are also elevated in Hong Kong, which will impact the timeline of when travel restrictions will be lifted to Macau.

    In premarket action on Wednesday, Las Vegas Sands (NYSE:LVS) fell 1.56%, Wynn Resorts (NASDAQ:WYNN) was down 1.86%, Melco Resorts & Entertainment Limited (NASDAQ:MLCO) shed 2.49% and MGM Resorts (NYSE:MGM) showed a 1.22% loss.

    Sector watch: Macau casino revenue slumps to 18-month low but Citi sees value stock picks

    AAPL -2.38%Apr. 06, 2022 7:55 AM ET9 Comments

    Fund managers increased their ownership of Apple (NASDAQ:AAPL) to a record high, according to Bank of America's strategy data.

    Analyst Wamsi Mohan, who rates Apple buy with a $210 price target, noted that fund managers increased their exposure to Apple by 7.1% month-over-month, the second-largest among IT hardware and supply chain stocks, behind only Amphenol (APH), which saw an increase of 7.16%. Total ownership of Apple (AAPL) was 77.7% at the end of February.

    "We attribute the increase to a flight to safety in a choppy macro-economic environment," Mohan wrote in a note to clients.

    Apple (AAPL) shares fell nearly 1.5% to $172.51 in premarket trading on Wednesday.

    In addition, Mohan also noted that Dell (DELL) was the only stock in the tracking data to see an ownership decline, falling 0.47% month-over-month.

    IBM (IBM) also saw an ownership increase by 0.84% month-over-month, Mohan explained, noting IBM, along with Corning (GLW), Western Digital (WDC) and Seagate Technology (STX) are "both underweight and under-owned."

    On Tuesday, Apple (AAPL) said its developers conference, known as WWDC, would remain in an all-online format, which the tech giant has used for the past couple of years due to the COVID-19 pandemic.

    SPY -1.31%Apr. 06, 2022 7:48 AM ET72 Comments

    Deutsche Bank now assumes the U.S. economy will fall into recession late next year, according to its latest World Outlook report.

    "Engineering a soft landing is never easy," economist Matthew Luzzetti and team wrote in the report. "This historical fact is particularly acute in the current environment of four decade high inflation, a labor market well beyond maximum employment, and a global economy that is experiencing a meaningful commodity price shock."

    Near-term growth will remain resilient, but a recession will occur in late 2023, while the terminal fed funds rate will reach 3.5% or more next year, he said.

    "In terms of the anatomy of the downturn, we anticipate that after growing modestly below trend in H1 2023, the economy decelerates sharply in the second half of the year as Fed tightening begins to bite more forcefully," Luzzetti said.

    "The presence of elevated recession risks over the next two years is consistent with the signals from a variety of indicators we track. Yield curve measures, regardless of which one is in focus, point to elevated recession risks over a two year horizon. These signals are co-signed by our preferred consumer sentiment recession indicator, which has recently fallen to a record low level. Its latest depressed reading would be consistent with 50% recession probability over the next year."

    As for equities, strategists Binky Chadha and Parag Thatte are sticking with their S&P 500 (SP500) (NYSEARCA:SPY) year-end target of 5,250 and the STOXX Europe 600 (STOXX) of 550 "with a typical recession correction of 20% in late 2023."

    "Our projections for equity demand-supply this year suggest equities should be well supported by strong inflows, a recovery in positioning to at least somewhat above neutral and buybacks, but this support should start to slow with growth in the second half of next year," they said. "We see some but limited impacts on European earnings from the Russia-Ukraine war and multiples recovering."

    "In 2023, we expect equity markets to hold up well through the summer before the US falls into recession and for equities to correct by a typical 20% as it begins, before bottoming half-way through and recovering prior levels."

    U.S. interest rates continue to rise this morning, but the yield curve is steepening and no longer inverted.

    VALE +0.89%Apr. 06, 2022 7:47 AM ET

    Benchmark iron ore futures in China jumped 4% on Wednesday, Reuters reports, hitting their highest level in more than eight months, as trading resumed after a holiday break.

    Most-active iron ore futures on the Dalian Commodity Exchange (SCO:COM) rose as much as 4.1% to 945 yuan/metric ton ($148.49), as demand at steel producers recovered from COVID-19 disruptions, before settling +2.2% at 927 yuan/ton.


    With expectations that China will stabilize its economy and stimulate the real estate sector, iron ore demand is expected to rise, according to analysts at Huatai Futures.

    Portside iron ore inventories in China totaled 155.6M metric tons in the week ended April 1, 4M tons below levels a week earlier and 3.3% from the mid-February peak, SteelHome said.

    "Vale has a great opportunity to be the primary ore and mineral supplier for most of the west," Sandis Weil writes in a bullish analysis posted on Seeking Alpha.

    BABA -3.48%Apr. 06, 2022 7:30 AM ET12 Comments

    Alibaba (NYSE:BABA) received some positive commentary from Citi, as the investment firm said shares of the Chinese internet giant are "attractive" despite the number of issues facing it, including rising COVID cases in China.

    Analyst Alicia Yap lowered her price target to $177 from $200, but maintained the firm's buy rating, noting that economic activity in China has slowed, which will likely hurt the company's profit growth in fourth-quarter of fiscal 2022 and could go into the next quarter and possibly beyond.

    Yap also noted that Alibaba (BABA) has likely slowed its investment subsidies, with the company's management saying last quarter it expects investment losses in Taobao Deals and Taocaicai to "narrow gradually" in the next few quarters.

    Alibaba (BABA) shares fell slightly more than 2% to $108.62 in premarket trading on Tuesday.

    In addition, Yap noted that Alibaba (BABA) is likely to keep supporting merchants and with its revenue shifting towards lower margin or loss-making businesses, EBITA growth is likely to "remain under pressure."

    However, Alibaba (BABA) has strong cash flow, $15.8 billion in REPO and the stock is near a "historical trough," Yap pointed out, making shares "attractive."

    On Saturday, the Chinese government confirmed plans to revise confidentiality rules in regard to overseas listings that could help Chinese companies avoid being delisted in the U.S.

  6. PFE +2.09%Apr. 06, 2022 7:12 AM ET20 Comments

    A newly published study on booster shots of Pfizer (NYSE:PFE)/BioNTech (NASDAQ:BNTX) COVID-19 vaccine in Israel indicated that a second booster shot lowered the risk of the severe form of the disease in the elderly, but the protection against infection quickly dropped.

    The study published on Tuesday in The New England Journal of Medicine was based on the Israeli Ministry of Health database and included about 1.3 million people aged 60 years or older who were eligible to receive a fourth shot from Jan. 10 – Mar. 02 when the Omicron variant was dominant.

    The rate of infection and cases of severe COVID-19 were lower after a fourth dose of the vaccine than after only three doses, the researchers concluded. However, the “protection against confirmed infection appeared short-lived, whereas protection against severe illness did not wane during the study period,” they added.

    Early this year, Israel offered a second booster for people aged 60 years or older. In the U.S., those aged 50 and older are eligible to receive a fourth COVID-19 shot of Pfizer (PFE)/BioNTech (BNTX) or Moderna (MRNA) vaccines.

    The latest findings come ahead of a meeting by an advisory panel of the U.S. Food and Drug Administration (FDA) on booster shots today.

    JBLU -5.10%Apr. 06, 2022 7:08 AM ET12 Comments

    The airline sector is still buzzing over the $3.6B offer by JetBlue Airways Corporation (NASDAQ:JBLU) for Spirit Airlines (NYSE:SAVE).

    Bank of America thinks the biggest rationale for the deal is the increased scale for JetBlue (JBLU) due to the nearly all Airbus fleet for both airlines, as well as the ability for JBLU to plug into Spirit Airlines' (SAVE) order book.

    For the sector as a whole, the biggest potential positive seen for the industry is that the proposed deal would eliminate one of the lowest fare and fastest growing airlines in the U.S. that has been a nuisance for carriers such as Southwest Airlines (LUV), Frontier Group (NASDAQ:ULCC) and American Airlines (NASDAQ:AAL) over time.

    However, Bank of America analyst Andrew Didora and team have plenty of questions about the deal.

    BofA's concerns:" 1) how much would it cost to retrofit SAVE’s 175 plane fleet to JBLU product, 2) how do they present a case to regulators, 3) how do you bring the low fare SAVE customer into the JBLU network, and 4) plans to de-lever post the potential deal."

    Some of those issues could be brought up on a JBLU conference call later on Tuesday morning.

    Elsewhere on Wall Street, Raymond James lowered JetBlue (JBLU) to a Market Perform rating from Outperform. Evercore ISI cut its rating on Spirit Airlines (SAVE) to In-line from Outperform with the firm saying it would be surprised if a higher offer materializes and expecting twists and turns along the way during the approval process.

    Shares of JetBlue (JBLU) fell 3.75% premarket after shedding 7.08% on Tuesday. Spirit Airlines (SAVE) shed 3.23% to cut into the 22.42% gain from Tuesday.

    Dig into the JBLU-SAVE details.

    None of this stuff was bothering people when Frontier (ULCC) was buying SAVE?  I guess two totally crap airlines can merge and no one cares what happens but if a good airline wants to buy a bad one – that's a problem???  Seems to me this is a PR attack by ULCC or maybe the other majors who don't want JBLU to join them in size. 

    Why would JBLU have to make a "case to regulators" to go from 5.3% to 10.2%, when there would still be 4 airlines that are bigger than them?  ULCC + SAVE would have been 8.2% anyway.  You've got to have perspective when reading this nonsense.

    Apr. 06, 2022 7:06 AM ET

    • MBA Mortgage Applications
    • Composite Index: -6.3% vs. -6.8% prior, down 41% from year ago.
    • Purchase Index: -3% vs. 1% prior
    • Refinance Index: -10% vs. -15% prior
    • Refinance demand was 62% lower than the same week one year ago; refinance share of all applications fell to 38.8% from 51% a year ago.
    • 30-year mortgage rate at 4.90% vs. 4.80%
    • Mortgage News Daily indicated that the 30-year fixed rate mortgage averaged above 5.02% on Tuesday, first time it has crossed the 5% threshold since 2013.
    • "Mortgage application volume continues to decline due to rapidly rising mortgage rates, as financial markets expect significantly tighter monetary policy in the coming months. As higher rates reduce the incentive to refinance, application volume dropped to its lowest level since the spring of 2019," MBA economist Joel Kan commented.

    VWAGY -4.30%Apr. 06, 2022 7:01 AM ET7 Comments

    • Volkswagen Group (OTCPK:VWAGY) will cut down 60% of its combustion-powered models by the end of the decade and sell fewer cars overall to concentrate on producing more profitable premium vehicles, says CFO Arno Antlitz to Financial Times.
    • "The key target is not growth," Antlitz told the FT. "We are (more focused) on quality and on margins, rather than on volume and market share."
    • The automaker would reduce its range of gasoline and diesel cars, consisting of at least 100 models spread across several brands in Europe by 2030.

    PLAY -8.00%Apr. 06, 2022 6:43 AM ET

    • Dave & Buster's Entertainment (NASDAQ:PLAY) is acquiring Main Event from Ardent Leisure Group Limited (OTC:ARDLF) and RedBird Capital Partners in an all-cash transaction of $835M.
    • Upon closing, Chris Morris, the current CEO of Main Event will be named CEO of Dave & Buster’s.
    • Main Event is a family entertainment concept with 50 locations in the U.S, including three recently acquired The Summit locations in Colorado.
    • The transaction is expected to close later this year.
    • The purchase price represents an unsynergized valuation multiple of approximately 9x Main Event’s 12-month Adjusted EBITDA as of December 31, 2021.
    • The company expects to achieve ~$20M of synergies within the first two years from store support center consolidation and supply-chain efficiencies.
    • The company expects the acquisition to be accretive both from an earnings and growth perspective.
    • Acquisition will be funded using cash on hand and proceeds from committed bank financing.
    • Dave & Buster's Board Chair and Interim Chief Executive Officer Sheehan will return to his role as Board Chair following the completion of the acquisition.
    • Check the most recent analysis on the stock here.
    • Wall Street Analysts and SA quant analysts rates the stock with a strong buy.

    Now THAT's a major merger!  wink

  7. Apr. 06, 2022 5:44 AM ET77 Comments

    Investors have been hit with an early surprise before the release of Wednesday's FOMC minutes, which was supposed to give some clues about a reduction of the central bank's $9T balance sheet following a quarter-point rate hike in March. The clues are no longer needed. Fed Vice Chair Lael Brainard pre-empted the minutes on Tuesday by saying a "rapid" reduction could happen as soon as May, calling the move "of paramount importance" to bring down inflationary forces, while the Fed is "prepared to take stronger action if indicators show such action is warranted."

    Supply and demand: Treasury yields shot up on the news, climbing 14 basis points on Tuesday to settle at 2.55%. Things kept going on Wednesday morning, with the yield breaching the 2.6% level after rising 7 bps to 2.62%. When the Fed (the biggest buyer of Treasuries) reduces its balance sheet, the market is flooded with supply, meaning prices go down and yields go up (the two have an inverse relationship). As in most markets, current yields factor in future conditions, and all of those are now pointing to a faster pace of quantitative tightening.

    Besides pulling liquidity from the financial system, another catalyst weighing on the bond market was a fresh sanctions package announced by the EU that proposed a ban on coal imports from Russia. The elevated commodity prices that are likely to ensue will drive inflation even higher, weighing further on the Treasury market (which is strongly linked to inflation). There's also a 78% chance the Fed will raise its key rate by half a percentage point in May – a pace it hasn't used since 2000 – on top of the median estimate of seven rate increases this year.

    Go deeper: The developments saw equities lose some of their steam, with stock valuations ballooning over the last decade alongside Fed balance sheets. There are further fears of slowing growth amid inverted yield curves, while Deutsche Bank has even become the first big bank to forecast a U.S. recession that begins in 2023. "We no longer see the Fed achieving a soft landing," wrote economists led by Matthew Luzzetti. "It is now clear that price stability… is likely to only be achieved through a restrictive monetary policy stance that meaningfully dents demand."

    Apr. 06, 2022 2:58 AM ET71 Comments

    Here are the latest headlines in the Russia-Ukraine crisis:

    More sanctions

    The discovery of civilian murders and other atrocities in Bucha is leading the U.S., EU and G7 to coordinate a fresh round of sanctions on Russia. Under consideration is an American ban on investment in the country, as well as an EU ban on coal imports and increased penalties on financial institutions. "You can [also] expect that they will target Russian government officials, their family members, Russian-owned financial institutions, also state-owned enterprises," added White House Press Secretary Jen Psaki. "It's a part of the continuation of our efforts to put consequences in place, hold Russian officials accountable."

    More assistance

    As Russia repivots for a renewed assault on areas in eastern and southern Ukraine, Washington is sending another $100M of military aid to Kyiv, which will go toward purchasing more Javelin anti-tank missiles. That's on top of the $300M in assistance announced by the DoD on April 1, bringing total U.S. assistance to $1.7B since the beginning of the invasion in late February. Secretary of State Antony Blinken authorized the immediate drawdown, which allows the White House to help countries during emergencies without approval from a legislative authority or budgetary appropriations.

    WEAT -0.39%Apr. 05, 2022 7:22 PM ET6 Comments

    Wheat futures in Chicago rebounded Tuesday from the lowest close in a month on Friday, as accusations of war crimes perpetrated by Russia in Ukraine are leading to fresh sanction proposals which helped lift U.S. grains and other commodities.

    Continued stress on exports coming out of the Black Sea is providing support for grains, particularly wheat (W_1:COM), which led the CBOT with a +3.5% gain to $10.45 1/4 per bushel for the May contract; soybeans for May delivery (S_1:COM) settled +1.8% to $16.31 a bushel, and May corn (C_1:COM) closed +1.2% to $7.59 3/4 a bushel.


    "Ports are closed in Ukraine and Russian shippers and exporters are not offering in part due to sanctions but mostly due to the war and the chance to lose ships," Jack Scoville of Price Futures Group said, Dow Jones reported.

    Worse than expected U.S. crop conditions added to global supply concerns, as the U.S. Department of Agriculture reported winter wheat is in 30% good-or-excellent condition, a record low and well below the 53% reading at the same time last year.

    "U.S. hard red wheat ratings are the lowest on record and point to a 10%-20% fall in U.S. hard red wheat yields vs. trend depending on April/May weather conditions," which will cause grain traders to focus on weather forecasts for wheat-growing Plains areas in the coming weeks, according to AgResource.

    Global demand for grains should remain robust given supply tensions created by the war between Russia and Ukraine, two of the world's biggest grain exporters.

    UNG +4.37%Apr. 05, 2022 6:27 PM ET39 Comments

    U.S. natural gas (NG1:COM) climbed Tuesday to its highest closing price since January 27, ending +5.6% at $6.032/MMBtu, helped in part by the possibility that additional sanctions on Russian gas supplies will keep U.S. liquefied natural gas exports near record highs for a number of months.


    If Europe cuts down on coal purchases or bans natural gas from Russia, there's "going be more pressure from the U.S. to send every molecule it can over the next few months to Europe," Price Futures Group analyst Phil Flynn told MarketWatch.

    U.S. natural gas prices have gained as a result of rising coal prices, according to Manish Raj at Velandera Energy Partners, as Central Appalachia coal prices topped $100/short ton last week for the first time since 2008.

    "As coal-fired power plants become more expensive, electric grids will look to natural gas-fired plants, thereby raising domestic natural-gas prices," Raj said.

    Also lifting prices were expectations of colder temperatures in some regions - Atlanta, for example, will see lows in the 30s this weekend – although analysts at say the rise in the number of Heating Degree Days "this late in the season simply don't drive as much nat gas demand compared to the core winter."

    Even if Europe fully bans Russian gas, oil or coal imports still remain on the table and would mark a major pivot in strategy.

    LIT -3.13%Apr. 05, 2022 5:41 PM ET312 Comments

    Senator Joe Manchin told the LNG Allies' Transatlantic Energy Security Forum IV event on Tuesday that he "will not sign up" for an aggressive electric vehicle push, which apparently sent lithium industry stocks (NYSEARCA:LIT) plunging across the board.

    Among potentially relevant tickers: NASDAQ:PLL -10.8%NYSE:LAC -10.7%SLI -7.6%MP -6.5%LTHM -6.5%ALB -3.9%SQM -3.6%.

    Manchin raised two objections to President Biden's plan for electric vehicles, according to the Washington Examiner: Proposals have not sufficiently addressed who will get the revenue from the electricity used to charge vehicles with taxpayer-funded charging stations, and U.S. critical mineral supply chains are underdeveloped.

    "I will not sign up [to transform] our energy and transportation system around EVs that have to be dependent on foreign supply chains," the Senator said, according to the Examiner.

    At the same event, Manchin reportedly expressed frustration over slow gas pipeline approvals and asked the Biden administration to be more "open-minded" in its energy policy response to the war in Ukraine.

    Lithium names were rising in recent days following initial reports that President Biden would sign the Defense Production Act to encourage domestic production of minerals needed to make batteries for electric vehicles.

    AMZN -3.33%Apr. 05, 2022 4:58 PM ET84 Comments

    Amazon (NASDAQ:AMZNon Tuesday announced deals with Arianespace, Blue Origin and United Launch Alliance (ULA) to provide heavy-lift launch services for Project Kuiper.

    The contracts total up to 83 launches over 5 years, providing capacity for AMZN to deploy the majority of its 3.2K-satellite constellation. As per the company, this is the largest ever commercial procurement of launch vehicles.

    Project Kuiper is AMZN's initiative to increase global broadband access using a constellation of satellites in low Earth orbit.

    Suppliers from 49 U.S. states will help develop the next-generation, heavy-lift launch vehicles from Blue Origin and ULA, while Arianespace relies on ArianeGroup's network of suppliers from 13 European countries to produce its Ariane 6 rocket.

    AMZN is working with Beyond Gravity, a Swiss space technology provider, to build low-cost, scalable satellite dispensers that will help deploy the Project Kuiper constellation. Beyond Gravity will open a new production facility for the same.

    European spaceline Arianespace's Ariane 6 rocket is scheduled to launch by year-end. AMZN secured 18 Ariane 6 rockets as part of this initial deal.

    AMZN signed a deal with Blue Origin to secure 12 launches using New Glenn, with options for up to 15 additional launches.

    AMZN's deal with ULA covers 38 launches on Vulcan Centaur, ULA's newest heavy-lift launch vehicle.

    This contract also covers production and launch infrastructure to support a higher cadence of launches at Cape Canaveral Space Force Station.

    The deal is in addition to Project Kuiper's existing deal to secure 9 Atlas V vehicles from ULA.

    Project Kuiper plans to launch 2 prototype missions later this year on ABL Space Systems' RS1 rocket.

  8. XLE +1.68%Apr. 05, 2022 4:48 PM ET14 Comments

    • The American Petroleum Institute "API" reported crude inventories rose 1.1mb, relative to the DOE expectation for a draw of 2.1mb on the week.
    • Crude inventories at Cushing rose 1.8mb on the week, according to the API.
    • API reported gasoline inventories fell 0.5mb, relative to the DOE expectation for a build of 0.1mb on the week.
    • API reported diesel inventories rose 0.6mb, relative to the DOE expectation for a draw of 0.8mb on the week.
    • In total, API showed a build of 1.2mb in oil and oil products on the week, relative to the DOE expectation for a 2.8mb draw.
    • The API figures are bearish, relative to DOE expectations (USO) (XLE).

    CL1:COM -0.57%Apr. 06, 2022 10:30 AM ET1 Comment


    Net -3.6 is just about as expected, just not the mix they expected.  

    Robert Prosek: The hero we didn't even know we needed - State of The U

    SP500 -1.32%Apr. 06, 2022 10:43 AM ET5 Comments

    Stocks are moving lower Wednesday as attention turns from rate hikes to quantitative tightening and worries rise about a hard landing.

    The Nasdaq (COMP.IND-2.3% is seeing the most selling pressure again, with the S&P (SP500-1.3% and Dow (DJI-0.7% lower.

    The yield curve is steepening again. The 10-year Treasury yield is up 8 basis points at 2.63% and the 2-year is up 3 basis points at 2.53%.

    The 10-year is already above 2.6% after closing above 2.5% yesterday for the first time since May 2019.

    "Tuesday continues a trend that started in late November: The Fed continuously providing hawkish surprises to the market, despite how aggressively the market prices in tightening," Kinsale Trading's Tom Essaye said. "Markets have proven resilient in the face of these consistent hawkish increases, but the bottom line is that it can only take so much – because the more aggressive the Fed becomes, the greater the chances the Fed kills the economy to stop inflation (and if this keeps going, I’m going to start to believe that’s what they believe they need to do)."

    Deutsche Bank now says its base case is for the U.S. to fall into a recession in late 2023.

    The market will be looking closely at the Fed Minutes coming out this afternoon, especially to see who agrees with Fed Governor Lael Brainard that a rapid reduction of the balance sheet is coming.

    "Today’s FOMC minutes should give more detail about what QT may look like," Deutsche Bank's Jim Reid wrote. "Brainard is typically perceived to be dovish, that the comments came from her left little doubt about the consensus of the entire committee voting bloc."

    "The pandemic was nothing like the global financial crisis – no credit crunch, and economically less a recession and more grandes vacances on steroids," UBS chief economist Paul Donovan said. "A faster withdrawal of liquidity follows a faster drop in liquidity demand."

    Among active stocks, oil-related names are among the best performers in the S&P. Tilray is rallying after earnings.

  9. Jetblue and Spirit is not just a total market share issue. It is a very weird deal. Note that JBLU already has a strategic partnership with AA, so this is in effect going to be a JBLU + AA + SAVE combo. The concentration in NYC is a major problem. There were already questions raised about JBLU's and Americans concentration in the NYC area (the Northeast Alliance between Boston, JFK, LGA, and EWR); I think just JBLU and AA were ~20% there, and the DOJ sued. With JBLU + AA + SAVE, this now jumps up even more. JBLU also decided to move away from the LGA Marine Air terminal, and Spirit took over that. The DOJ is going to have issues, there is no way they would have approved the JBLU+AA Northeast alliance if they knew it could become JBLU+AA+SAVE.

    Also, JBLU said that they will move away from SAVE's low cost model, and will re-fit all equipment to meet JBLU livery. Seems like a lot of money to end up with just new Airbus parts…

  10. AMZN   you got to give them credit, they always think big.   Now how in the world would you remember that B-52 song existed?

    AMZN  today a trader ( gambler ) buys 2700 Sept $4200 calls, spending $9M or $10 M    I suppose it could be a cover, maybe 

  11. That's a good point, RN.  If you include AA it's a different story and they may have to divest some gates/routes in the very least – hopefully give them to LUV, not ULCC.  

    Still, Delta is 40% of LGA and AA is 24.7% and JBLU is currently 4.1% so even with SAVE you can't say they are dominating.

  12. Song/Stock – The word satellite triggered it in my head.  It's a mess up there….

    AMZN/Stock – I'd say it's a cover on approach to $3,500.

  13. so a trader picks up 10,000  June

    DAL $40/ 45 call spreads on this airline news 

  14. I'm a little older than you, so for me it would be Telstar

  15. oh nice    DELL someone seeing value

    a buy of the 2024 $42.50 calls for $9.90   x 500  

  16. B52s are great! Blend of dance and surf music. My wife & I scare our sons occasionally with a couple of verses from their songs like Rock Lobster, Private Idaho. 

  17. What do you think of CNXC.  Simple customer service business.  Hit hard least earnings report, but earnings looked good (not great).  Options only o out 1to 12/2022 .. but thinking of selling some 150 puts at about $13.  Stock currently at $167 .. down from $200ish.  

  18. Phil, Batman   what do you think of SWK    its looking cheap to me 

  19. QCOM, someone sold 1500 Jan2024 $125 puts for $20+   

    QCOM for $105  doesnt look too bad

  20. Telstar/Stock – Wow, we need Wolfman Jack to introduce that one…

    Scaring the kids/Randers – Yes, sadly that's what's become of our music.  Me playing Pink Floyd gets the same suffering reaction I used to give my parents when they'd force me to listen to Bing Crosby or Perry Como… 

    CNXC/Nom – Nice, boring company.  $165 is getting interesting as it's $8.5Bn and they should be good for $650M so under 15x.  They spun out of SNX so it's always tricky to value companies and they did it in 2020 – when it was tricky to value companies but, on the whole – it seems worthwhile.  Remind me later and we can go over it because….

    It's Webinar Time!  

    SWK/Stock – Same as above.

  21. StockB / Phil / SWK – They are a good company, Good GM and Op Man as well as steady growth. Got slammed last earnings due to higher input costs ( +6% margin hit)  however they also said they implemented a price increase and that coupled with an accelerated buy back program ( 2B)which brings combined programs to about 4B  ) was announced should also help going forward.    They posted a 10.16 EPS in '20,  I have them at about EPS oaf 11.9 ish 2022 year and 12.8 2023 next year. with at 15 multiple  gets you to 170 or price point.  .. The spike is oil due as a result of the invasion may still be a headwind.     

    Would to see what Phil thinks of this

  22. Stockbern / SWK – Their market cap is 20B – so buy back is significant

  23. So the webinar was very very informative this week.

    We talked about we talk about rising rates And how they are going to affect the companies we invest in.

    Overall, The Fed is on a very firm path to get to 2% this year and, just as important, they are no longer going to be the main buyer of US debt. That is the real danger no one is paying attention to. At what price will we have to sell our debt (over $300Bn/month)?

  24. SWK/Stock, Batman – Always worth buying when they are cheap and they are 30% off their highs and back to 2019 levels and $140 is $21.4Bn against $20Bn in sales dropping 10% to the bottom line so good deal.  $6.5Bn in debt x 2% is $130M in interest we can knock down but that still leaves them attractive so yes, winner!  

    For the LTP, let's do the following:

    • Sell 10 SWK Jan (no 2024 yet) $120 puts for $8 ($8,000)
    • Buy 20 SWK Jan $130 calls for $20.50 ($41,000) 
    • Sell 20 SWK Jan $150 calls for $10.50 ($21,000) 

    That's net $12,000 on the $40,000 spread with $28,000 (233%) upside potential in 289 days if SWK gets over $150.  If they get back to $180, we can make more money selling some short-term calls, the July $160s are $2.50 and if we can get that for the $180s, I'd be inclined to sell maybe 7 for $1,750, using 100 of our 289 days.

    Kind of zig-zagging into the close.

    Oil took a huge hit on the same 120Mb SPR release news (60M US, 60M other partners) that we talked about last week.  Funny how delayed these reactions are.  I guess people don't really believe it the first 2 or 3 times they hear something?  

  25. I feel very fortunate with my son's. They like some of my music. One has a turntable and has some of the same records that I listened to at his age. We are scheduled ( nothing is for sure now after 2 years of delays) to see Roger Waters this summer. 

  26. Jackie, who just turned 20, got a bit into old-time rock and roll but Maddie (22 in July) never did.