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10-Year Tuesday – Key Bond Rates Up 100% in 3 Months

This is clearly out of control.

Officially, the Fed has rasied interest rates 0.25% since the start of the year but the interest on a 10-year note has gone up 1.4% and almost 1% of that has been in the past 30 days. This is what happens in 3rd World countries that are on the brink of collapse – not usually in the US of A.  

Of course the Fed has told us they intend for Fed Funds Rates to be at 2% a the end of 2022 and that is 1.75% higher than where we began the year and, certainly, if you are going to lend the Government money for 10 years and you know the internal rates will be 2% at the end of the first year (and probably even higher next year), then it would be foolish of you to accept less than 3% – as 10-Year Notes generally command a 1% premium.to the Fed Funds Rate.  

So, to some extent, we can just assume the 10-year is being forward-looking but this is a lot of looking forward so what if there are other factors in play and what if, disguised by the promised rate hikes, there is also a loss of faith in our country's ability to pay the money back?  We're already $32Tn in debt so it's not too ridiculous to wonder where the Hell we'll be getting that money from – especially since our 2022 deficit is $2.4Tn WITHOUT any additional stimulus being passed and WITHOUT anything being done to address Climate Change, which is estimated to cost $2Tn a year for the rest of the Decade or, failing to do that, tens of Trillions after that as we have to adapt to a melting planet.  

If we are running a $2.38Tn deficit and we currently collect $4.117Tn in taxes – how are we going to "fix" the deficit?  The Budget is $6.4Tn so we can either cut Government spending by more than 1/3 or we can increase taxes by more than 50% – those are the choices that lie ahead of us.  At the moment, we are choosing to just go deeper and deeper in debt but the rising rates are going to increase our annual interest on the debt from $430.5Bn (1.4%) to $955Bn (3.4%) and that extra $522Bn will then also become more of a defict we'll have to reduce.

Yes, Treasuries Do Have Risk | Seeking AlphaWould you lend us money for 10 years at 3%?  Certainly not this morning as CPI just came in at an 8.5% annualized rate so, if you are lending money at 3% for 10 years, you are losing 5.5% per year to inflation so, when you are given you money back, it will have just 45% of the buying power it had when you lent it out.  This is what happened last time we had inflation like this in the 70s.

By the early 80s, people lending our Government money were demanding 15% and 18% interest on their money to stay ahead of inflation – Greece topped out at 21% in 2008 – we weren't so far off in the 80s.  Of course the Government will tell you that they have things under control and this isn't going to happen again – that's because they need to borrow another $200Bn this month and every month after that.  

And I would LOVE to tell you that there are signs that Consumer Price Inflation is calming down – but it clearly is not:

As you can see above, February was 33% higher than January and March was 50% higher than February.  Oil averaged $104 in March and, so far in April, it's been $100 so a very slight easing there isn't going to help much.  The Futures are staging a relief rally of some sort since the Gasoline Index was up 18.3% in March and accounted for half the total gain but, as I said, down 4% in April won't fix that – February's average was $90 for oil and we still came in a 0.8% and if we're averaging 8.5%, then 0.8% in the 4th month won't move the needle much.  

Not only that, but Oil and Gasoline are leading, not lagging indicators and it takes time for their prices to bump up the price of food and finished good so fresh horses will keep the CPI rising next month as well.  These are the highest Consumer Prices ever recorded:

That's a record high, said Stuart Hoffman, senior economic advisor at PNC Financial. "This takes a huge bite out of consumer spending power, Chairman Powell is going to need a bigger rate hike! 50 bps hike in May is a done deal and another 125 bps by year end."

Even the usually doveish Charlie Evans of the Chicago Fed says he sees 2.25% to 2.5% as the necessary rate zone, and he wants us to get there in 12 months of less in order to contain inflation.  Nonetheless, the indexes are now up about 1% in the Futures as the Core CPI was "only" 6.5% – as if that's a good thing when 2% is the Fed's goal.  At the moment, people are grossly over-estimating the Fed's ability to control prices.  

Maybe this time WILL be different but we're keeping up our hedges and we'll be going over our portfolio positions this week in our Live Member Chat Room as we try to surf this wild market wave.

 


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  1. Good Morning.




  2. National Urban League finds State of Black America is grim


  3. I seem to be missing comments today?




  4. Good morning!

    Russell rockets back over 2,000 but 4,500 on /ES is the key to recovery.  

       

    Oil flying back to $100 too.  /NG is in space.

        

    Dollar still flirting with 100.

    VIX rejected at 25 – what volatility?

    Comments/Rvn – How can you be missing them if you are making them?


  5. I just got your comment Phil after I posted to see if it would work, but no other member comments.  Seemed unusual for this late in the day.


  6. Short-Term Portfolio Review:  $547,616 is up $125,718 since our March 15th review.  We only made an adjustment to TQQQ at the time as, for the last two months, we've generally just been making an adjustment each week, rather than going all at once at expirations.  That allowed us to take advantage of the big pop we had at the end of March and we got a lot more bearish ahead of the recent drop.  Now we just have to sit back and see what sticks.  We've added longs to the LTP and other portfolios as well, so we remain fairly well-balanced overall.

    • COIN – Still good for a new trade with a net $74.50 entry.
    • LABU – Going nowhere since we entered but the magic of time decay is giving us a profit anyway.
    • UNG – Miles over target 
    • W – We're in for net $126.55 and W is at $115.31 so we're $11,000 down if it closed today and the other $15,000 loss that's being shown is premium that will expire by Jan.  Clearly it would be silly to give up.  Also, the 2024 $95 calls are $27 – so we could drop 35% in strike on the roll.  I haven't done that because I don't like this stock and want to be done with it as soon as possible – so I'm avoiding giving them another year in the portfolio if possible.  

    • CVX – That was easy.  Net $30,000(ish) on the $45,000 spread but I'm pretty confident in our target.  May as well make some income while we wait and we can sell 5 June $170 calls for $8.50 ($4,250) and, if CVX has good earnings on the 29th, we'll sell some puts to pay for a roll up and, if not, it's a quick $4,250 we get to keep.

    • DIA – The short puts held their value better than our long puts so far.  That gives us the opportunity to roll the 50 Sept $320 puts at $10.50 ($52,500) to 50 of the Sept $310 puts at $8.50 ($42,500) so for just $10,000 we are widening the spread by $50,000.  We can make that money up by selling 15 May $330 puts for $4 ($6,000) and we'll see how things go from there.  

    • TQQQ – This is one we have to simply wait out.  If TQQQ bounces back, then the short puts may go worthless while the longs retain some value and, if TQQQ goes lower, then we will roll the Jan $75s to something lower in 2024 (the 2024 $60 puts are $24, so it would cost $5,000 to roll to a $15,000 spread.

    • SQQQ – We have a $400,000 2024 spread covering the 50 extra short $60 calls – I feel very good about that.  Then we've got the $350,000 (100/100) Jan spread – also a good thing.  

    • TSLA – Just added this last week for net $6,500 on the $50,000 spread.  

    • TZA 1 – 2 $200,000 spreads, one for Jan, one for 2024 – both half in the money already.  
    • TZA 2 – We have a $300,000 spread and a $400,000 spread with 50 short July $40s that would put us in the money – so not worried.  Also the leftover 25 short 2024 $40s that can't really hurt us and fixing those is where the short Julys came from so they'll get fixed when the short July calls expire.  

    Nothing to change here.   We're up to about $1.7M worth of protection against a 20% drop and this portfolio has plenty of cash for adjustments as well.  

    '



  7. Comments/Rvn – You do realize that, if you are a basic Member, you can't see Premium Members' comments, right?   Other than that, it's a holiday week – kind of quiet and, as noted yesterday – our portfolios are super well-balanced.  



  8. hi phil

    , ive been a basic member for a long time i had no idea i was missing comments from premium members.

    does that mean im missing your responses to premium members also?

    just curious.

    thanks


  9. Phil / LRCX – down at 475 thoughts?


  10. Money Talk Portfolio Review: $272,749 is up $31,820 in our untouched portfolio.  That's a pretty good indication of how good these picks are as the market didn't go anywhere and, don't forget, the way we set up our spreads, "BEING the House", our default mode is to make money – even in flat or slightly down markets.  The last time we touched this thing was when I did the show on 2/23.  

    • BYD – On track.  
    • GOLD – Finally taking off.  I was wondering when that would happen.

    • HPQ – Buffett just bought them with me, so no worries.  
    • IBM – Stock of the Year!  
    • INTC – This is why they were only the runner up.  Supply chain issues and R&D costs in 2022.

    • LABU – Our new trade.  Still good for a new trade.  
    • MO – Deep in the money already. 
    • PARA – Was VIAC, doing better now, we have 20 months to get to $40.

    • SPWR – We got way more aggressive in Feb and I'm glad so far.  It's tricky because we can't re-cover it until I'm on the show again – probably May.  But I knew that and felt very confident SPWR was likely to be strong into the summer.   At the moment, the war is distracting Biden from his environmental agenda.

    • WBA – They fell back down in their range but still good for a new trade is all I have to say about that.


  11. Phil / LRCX –  full pos —   I see them at a EPS of 34 ish this year and ( I think they are sold out of procuct for the full year ('22) '39 in '22.   They new products they are shipping are being well received —  min PE should be in the 15 X range —- I've been waiting for them to hit 450 but only close so far…. 580 to 600 should be a reasonable price point…  


  12. Comments/Tommy – It's in Members' Benefits boxes.  If it's a general question – I usually reply to all.

    LRCX/Batman – Here's an interesting chart.  Not the price chart but how much LRCX has fallen off it's highs in previous downturns:

    Chart

    So, as you can see – 25% is a pretty mild correction for them as they go through a lot of major price swings, as does AMAT, who are mirroring their move:

    From my perspective, this is a stock that was at $200 in March 2020 and is now $477 and you are excited because it was over $600 for a few months so you are picking numbers that help you justify $450.  This is certainly a better company than it was in 2019 and maybe twice as good but in 2019 the stock was at $200 and twice as good would be $400 so I simply can't see this $600 target – especially with supply chain issues, chip shortages, a looming recession and higher rates on the horizon.  They are a nice company in good times but I see nothing compelling here.  


  13. GM Phil / LRCX – agree with the supply chain issues – with the lower volumes its' harder for them to negotiate on components…  logistics can be improved as well.  however, they are in a key technology field and probably one of the top 2 or 3 companies in the world ….

    Op Mgn – 25 to 33 %

    ROIC – 25% to 30% 

    Earnings growing faster than Rev.  Also heavy footprint in the memory segment which will grow nicely…     This is a high quality company….  At what price would you consider this?


  14. What are your thoughts on /NG. Do you think we are getting close to a top, or would you steer clear for now?


  15. Saudi Arabia leads OPEC decision to drop IEA data as U.S. ties fray


  16. I-Bonds- interesting WSJ piece this morning on IBonds. For me, I am interested in income and safety at this stage in my life so rather attractive for parking some cash. 

    The Safe Investment That Will Soon Yield Almost 10%

    The March surge in the consumer-price index is the latest boon to buyers of U.S. savings bonds that are adjusted for inflation, known as I Bonds


  17. LCRX/Batman – Not so much price as situation.  I just don't think the environment is right for it now but, at $300 I'd take a position and be thrilled to DD at $200 or $150 if catastrophe strikes and happy to hold for a while while I wait for better conditions.  Now, you can sell the 2024 $300 puts for $25 and consider that a great place to start if you feel like you MUST have something on LCRX now – but I'm just going to be patient.

    /NG/Tully – Stopped playing them a while ago as they can rip your face off in either direction.  Being long at $4.50 was easy since I thought there were lots of reasons we could be over $5 when the war started but now, up past $6 – I remember it being $13 and $14 back in 2005 and again in 2008 so I sure wouldn't bet against it but, without the war – it can drop back below $5 very quickly.  Not worth the risk.  

    PFE -1.12%Apr. 12, 2022 1:22 PM ET

    • The CDC says that ~86% of new COVID-19 cases in the U.S. as of the week ended April 9 are the result of the Omicron subvariant known as BA.2.
    • BA.2 has been responsible for a growing percentage of COVID cases in the country. About four weeks ago, BA.2's percentage shares of cases was ~28%.
    • Data shows that Northeastern states are the most impacted by BA.2 with the subvariant accounting for more than 90% of cases in the region.
    • In addition, the seven-day moving average of cases was 28,339 as of April 9, a nearly 10% increase from a week earlier.
    • CDC data also showed that 95.6% of U.S. counties are considered having a low COVID-19 community level, which is based on new cases and COVID-related hospitalizations.
    • COVID vaccine makers: Moderna (NASDAQ:MRNA), Pfizer (NYSE:PFE), BioNTech (BNTX), Johnson & Johnson (NYSE:JNJ), AstraZeneca (AZN), and Novavax (NASDAQ:NVAX).
    • Recent studies suggested that BA.2 is resistant to nearly all monoclonal antibodies developed against COVID-19.

    BA +1.50%Apr. 12, 2022 1:16 PM ET3 Comments

    • The Boeing Company (BA +1.7%) reports 95 commercial deliveries in Q1 up from 77 a year ago.
    • Of the 95 aircraft delivered, 868 were 737 MAX jets.
    • For the month of March, the company delivered 41 aircraft, including 34 of the 737 Max.
    • Boeing (NYSE:BA) dropped 152 aircraft from its backlog for the accounting requirement in March, two-thirds of which were related to the war in Ukraine.
    • The company's Q1 results will be out on April 27.

    In Q1 last year they made $1.4Bn on $15.2Bn in sales and in Q2 they made $2.4Bn on $17Bn in sales and 23% more than $14Bn is $17Bn so we can infer profits should be more like Q2 and BA is only expected to make $2Bn all year and $4.4Bn next year.  It's possible materials and labor are hitting them on costs but 41 in March is on the way to 120 in Q2 and that would be very substantial no matter what.  

    In the LTP, we already sold 5 of the 2024 $200 puts for $30 for a net $170 entry and those puts are now $43.65 so we're down 45.5% on that position but BA is at $177.76 so the "loss" is all premium and only realized if we take it.  I don't see the need to sell more unless BA is much lower and then maybe a 2x roll to 2025 whatevers – the 2024 $150 puts are $19 so I'm sure we can drop even lower in 2025 for a net $135 entry on 10.

    Since I'm very sure I want to buy 1,000 shares of BA for $135 in our $2.4M portfolio (which is well-hedged), then I still consider our original $15,000 collected to be free money and now we can put it towards a bull call spread in the LTP:

    • Buy 20 BA 2024 $170 calls for $42.50 ($85,000) 
    • Sell 20 BA 2024 $225 calls for $21.50 ($43,000) 

    That's net $43,000 on the $110,000 spread and we sold the puts for $15,000 so net $28,000 with $82,000 (292%) upside potential but, as a new trade, you can sell the 2024 $200 puts for $43.65 and that's $21,825 and the net of a new spread would be just $20,175 with $89.825 (445%) upside potential.  Should BA go lower, THEN I'll want to sell 5 more puts and roll the $170s to the $150s (now $54) for $10 or less so $20,000 more intended to spend if BA goes lower less any additional net from more puts sold – which will depend on WHY they go lower.  If we think the reason is silly – then we'll do an aggressive sale.  If we think BA is weak, we'll do the 2x roll to 2025 which won't net us more money.

    Either way, I expect to be able to also make money selling calls along the way.  July $200 calls are $6 so just selling 5 of those brings in $3,000 for the Quarter (one of 7 we have to sell) but let's see how earnings look first.  

    BA reports on the 27th so we'll see how things are going but I'd hate to miss an opportunity to get them this cheap. 


  18. Grief, Everywhere


  19. Airbus – Sanctions won't work if you don't participate in them…. A-holes…. :(


  20. LVMH Sales Soar Despite Continued Pandemic, Conflict



  21. So much for that rally…

       

    It's amazing, we read the same CPI these guys did yet they decided it was bullish and then they get slapped down by people who know better.  

    Like I always say, the dip buyers need to get burned 3 times before they learn their lesson.


  22. Butterfly Portfolio Review:  Another "Be the House" portfolio and $1,501,992 is up $41,048 since our 3/16 review and it's much more impressive when you realize we have $926,512 (62%) in CASH!!!  Have I told you how much I love CASH!!! lately?  As usual, we didn't make many adjustments to the Butterfly Portfolio – it's pretty hands off on the whole.  This month, I'm going to look to maybe cover up a bit more as I don't trust the market.  

    • AAPL – I was hoping for better but it would be a sin not to sell some calls.   Earnings are on the 28th and they may be great so that's a worry but I don't think a 1/4 sale will hurt us too badly.  The May $175 calls are $3.20 but the July $175s are $6.60 and I'd much rather sell 40 of those for $26,400. More CASH!!! 

    • AMZN – What a crazy stock!  Now we're back to worrying about the short puts but they expire on Thursday and I'm sure not going to pay $30 to buy them back so we'll have to do that adjustment then.

    • DIS – I can't bring myself to cover down here.  The 20 short April $160 puts at $29.55 can be rolled to 30 June $150 puts at $20.75 for about even.  

    • F – We're pretty bullish already, I guess we'll see how earnings (end of month) go.    I'd go long here as a new trade. 

    • GNW – Not a very ambitious trade but very likely to succeed so I love it.  

    • GOLD – We just covered, partially and a bit early but it's our job to sell premium – not to attempt to be perfect (sometimes it happens by accident anyway).  Now that we're running into resistance, why not sell 25 of the June $27 calls for $1 ($2,500) as that would only leave us with 10 actual uncovered shorts that we can manage over time at worst and, either way, $2,500 against a net credit spread for 66 days out of 647 is a pretty nice income!  

    • IMAX – I hear movies are doing well but Shanghai locking down is freaking people out.  Let's just buy back the 20 short Jan $25 calls and see what happens at earnings (4/28).  

    • KO – Blasted higher as a safety stock so let's sell 10 June $65 calls for $1.80 ($1,800) to lock in some gains.  If KO pops much higher, I'd be inclined to cash in the 2024 $45s at $55,000 and buy 100 of the 2024 or 2024 $55/70 spreads to cover the short calls.   The 2024 $55/70 is $12.50/4.50 so $80,000 for 100 and we'd have the 10 short June $65s and we'd roll the 25 short 2024 $55s to shorter-term calls bit by bit and we'd have gone from having a $25,000 long to a $200,000 long for net $25,000.  See – now it will seem like a shame if we just make the $1,800, right?  

    • MJ – Waiting to see if Congress passes that Federal law.  

    • UL – Our newest spread.  So far, no good.  We'll see how earnings look.  It only costs $2 to roll down to the 2024 $45s, so we have to do that and I guess we should buy back the short 2024 $60 calls since they are already up 56% and THEN we'll see how earnings go.

    • WBA – Again, how can we not buy back the short 2024 $55 calls if they are already up 50%?  If they go lower, we'll sell lower calls to pay for the roll of our longs.

    • WHR – We feel these guys are being unfairly punished so again, we'll buy back the short 2024 $250 calls at $9.50 but we'll also roll the 2024 $220 calls at $14.95 down to the 2024 $190 calls at $24.  Paying $9 for $30 in position is a good investment.

    So much for raising more cash – we ended up spending some….




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

    https://attendee.gotowebinar.com/register/2575089639962237967