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Friday Flip Flop – Q2 is off to a Shaky Start

"It's like you're always stuck in second gear

When it hasn't been your day, your week, your month

Or even your year" – Friends

Actually it was last July when the S&P 500 first tested the 4,500 line.  

I was, at the time, a little skeptical, writing Morning Reports with titles like this:

July 1st - Throwback Thursday – Delta Variant Sends Many Countries back to Lockdowns

I know we don't want to start July off worrying about Covid when we should be going out and having fun but we need to remember not everyone is having such a good time and that kind of makes me wonder how all these projection of S&P 500 earnings, which rely 50% on the Global Economy, are going to be hitting their marks when the rest of the World is still facing serious issues?

July 6th - 2,300 Tuesday – Is the Russell out of Gas?

With 2020 earnings being negative, the CAPE (earnings over 10 years) of the Russell 2000 is still well below the 2018 high of 130, hovering around 120 but we're paying 43% more than we did then, when the P/E ratio for the Russell was 83.05.  The means the current P/E for the Russell is around 100 times earnings and we KNOW, for a FACT, that the Government and the Fed have spent over $10Tn (50% of our GDP) in the past 18 months – just to give us that 43%.  We don't know, for a fact, that they will ever stop spending and average of $600Bn/month to prop up the economy and, if so, then maybe paying 100x earnings isn't so crazy but, if they do ever stop….

July 14th - Which Way Wednesday – Biden Proposes $3.5Tn in New Stimulus

Is that going to be enough?  It's been 3 months since our last $2.1Tn stimulus so isn't it time for another round?  Look how great the economy is doing – it can't be because 40% of last Quarter's $5Tn GDP was stimulus, could it?  Yesterday, the CORE CPI came in at 0.9%, 50% higher than the 0.6% expected by leading economorons.   Remember when the CPI used to be high and they said "Don't worry, the Core CPI is still under 0.2%" – well that's completely out the window….

July 15th - PhilStockWorld July Portfolio Review – Part 2

$2,142,405!  

As long as we continue to do this in an up market – even if we end up burning the entire $183,290 balance in our STP, we'll still be about $300,000 ahead for the year – that's without doing anything smart along the way!  BALANCE, Danielson, BALANCE is the key to everything.  If you have balance, like a good surfer, you can make little adjustments and ride almost any wave.  If not – Wipeout!  

TIME TO PROTECT CASH – Aid EssentialsAug 17th - Top of the Market Tuesday – Cashing Out While We Can

The LTP is already over 50% in CASH!!! so cutting 1/2 of our positions should bring us to about 75% CASH!!! and then the CASH!!! is our hedge – as we've got tons of money to go bargain-hunting if there is a sell-off and, if there's not – well clearly we know a lot of ways to win.

Aug 19th - Thursday Failure – Supply Chain Issues Force Toyota to Cut 40% of Production

CASH!!! is one of our best hedges against a market downturn and we've been reluctant participants in the rally recenty but the combination of resurging Delta infections, continuing (and worsening) supply chain disruptions and a possible end to the constant supply of FREE MONEY that has been propping up the markets is simply a bit too much to stay bullish around – so back to CASH!!! we go.

Aug 27th - 4,400 Friday – Can Powell Add 100 Points?

You can see why we took advantage to cash out at the top – it's hard to find buyers when you are selling more than a few shares and the S&P dropped 5% in two days last week – it doesn't take much to send these dominioes tumbling over.  That's why Powell has a tricky job today (10 am).  He has to mke his keynote speach for the Jackson Hole Conference which is being held on-line because Covid has made it too dangerous to hold a conference – even for a few hundred rich people in a luxury mountain hotel.

It's hard to say the virus is behind us as an economic factor when your audience just had to cancell a trip to Wyoming because the disease you are pretending is gone just spiked up again – past last year's levels (when the conference was also cancelled).  

Meanwhile, the Fed minions are floating trial balloons about scaling back their monthly stimulus (tapering) from the current $120Bn a month because it has been jacking consumer prices up 10% – and that has been hammering down consumer confidence at a rapid level.

Anyway, you get the idea.  Same BS for a year, much less stimulus than we were promised and now the Fed has gone into reverse – so what do you think is going to happen?  We cashed out half our LTP in August and the market bottomed in early October and we had plenty of cash and we bought back until the Holidays when again, I got nervous and again we pulled back and again we started buying at 4,200 – now we hit 4,500 and we bumped up our hedges but we haven't cashed out our longs… yet.  

As the wise many said last July, BALANCE is the key to good trading.  The market has gone nowhere for a year but our Paired LTP/STP is now $2.9M – making pretty much exactly the $300,000 (15%) we projected each 6 months since.  That's what we can make in a balanced portfolio and I'd rather make a consistent 30% per year than an erratic 50%.

While we may seem to have good timing as the market shimmys within its channel, we're just value investors and we buy things when they are undervalued and we sell things when they are undervalued – it just looks like market-timing in hindsight.  What's most important is that our "Be the House – NOT the Gambler" system for selling premium means we can make money in flat or even slightly down markets – so we don't need huge rallies to make good, consistent profits.  

Overall I'm generally concernered and leaning more towards another CASH!!! call than anything else but we're waiting to see how earnings play out this month before making any major adjustments.  We went over our hedges in our Short-Term Portfolio (STP) in Wednesday Morning's PSW Report and we feel adequately protected against a 20% drop in the market – which will hopefully be the worst case.

Have a great weekend, 

- Phil

 


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  1. CLF somewhat smashing it. 


  2. Good Morning.


  3. I have some leftover sqqq .. long 1/23 5s 8s and 10s covered with short 15/20 and 30s.  Unfortunately these really did not serve as much of a hedge so I must have done something wrong.  Should I sell the long calls now that Nasdaq is down? Move to another hedge?  After watching We Crashed and Theranos show .. I have no confidence any more.  Feels like the bankers, the boards, the investors were just given the keys to the vault .. 


  4. Good morning!  

    Apr. 22, 2022 9:46 AM ET

    • April U.S. PMI Composite Index (Flash): 55.1 vs. 57.0 consensus vs. 57.7 prior
    • Manufacturing Index: 59.7 vs. 58.2 consensus vs. 58.8 prior
    • Services Index: 54.7 vs. 58.0 consensus vs. 58.0 prior

    PMI summarizes how market conditions are viewed by Purchasing Managers so it's a bit subjective but it does give a pretty good read on tone and this reading is negative – especially in services and probably indicates consumers being forced to cut back where they can as inflation forces them to pay more for necessities.

    The Philly Fed was also a disaster yesterday at 17.6 vs 24.5 expected vs 27.4 at the last reading and Mortgage Applications were down 5% and Existing Home Sales were down (and we're already low):

    United States Existing Home Sales - March 2022 Data - 1968-2021 Historical

    Just 200,000 less homes x $300,000 is $60Bn less economic activity but, of course, home sales drive a lot of other activity so we're easily talking about an annualized $1Tn hit to GDP, which is 5% of the total – nothing to sneeze at if this continues, right?  You can see why the Government is so fixated on Housing….

    We have about 110M homes so 6M new ones is about once every 20 years and homes do last longer than that so it's one of the first things people tend to cut back on.  A huge amount of "new home" formation is multi-family (condos/apartments) – it would be a lot worse if not for the investing class taking over the rental market and funding a lot of speculative markets.  

    Without population growth and without immigration – what's the real need for more housing?  Check out the UK market – it's been in decline since the 60s:

    House building pledges in historical context - Full Fact

    They've got 67M people, we have 330M so they have 20% of our population but 5x 120,000 homes is only 600,000 – not 6M!  Our economy would be in shambles if our people were content to live in old homes….

    We also have an aging population and more and more young people are moving back with their parents after college – so we're having less household formation and rising mortgage rates are not going to help either.  These are some very concerning long-term macros we're heading into.

    Wow, the EU caved:  

    NRT +0.30%Apr. 22, 2022 10:08 AM ET5 Comments

    • The European Commission said Friday that EU companies may be able to comply with Russia's proposed gas payment system, without running afoul of sanctions against Moscow.
    • Shortly following the war in Ukraine, President Putin issued a decree mandating that Russian gas exports to "unfriendly" nations be paid for in rubles.
    • Several EU leaders pushed back on the decree, indicating it would mark a contract violation, and insisting that gas transactions be settled in euros or dollars.
    • Friday's comment from the Commission could bolster Russia's domestic currency market, which has now fully recovered from the invasion-induced selloff.
    • The EU has proposed banning both Russian coal (BTU) and Russian oil imports (USO) (XLE) in coming months; however, the concession on currency payments likely points to continued Russian gas flows (EQNR) (SHEL) (VET) (NRT) for the duration of 2022.

    USO -1.09%Apr. 22, 2022 9:54 AM ET1 Comment

    Morgan Stanley lifted its oil price forecast Friday, as the bank sees additional Russian supply impacts from May onward, and a coin-flip chance the Iran deal falls through (NYSEARCA:USO). The bank cut its oil demand growth forecast, though indicated that "as the year unfolds, we expect refinery runs to increase, tightening the crude market in the process." The bank's Brent (CO1:COM) price forecast for Q3 2022 was lifted from $120 to $130, Q4 2022 was lifted from $110 to $120 and 2023 was lifted from $100 to $105.

    Morgan Stanley cited Interfax and Bloomberg reports that suggest oil production in Russia has already fallen by 1mb/d in April. Noting that the decline has not yet shown up in seaborn tanker exports, as Russian refinery runs have fallen more rapidly than production declines, allowing for sustained exports of crude. Given the rapid fall in production, Morgan Stanley now sees Russian volumes falling 2mb/d from May onwards (XLE).

    In Iran, Morgan Stanley had previously estimated 1mb/d of Iranian supply would hit the market by summer 2022. Given increasingly difficult negotiations, the bank sees a coin-flip chance the deal falls through. And as a result, Morgan Stanley now forecasts 500kb/d of Iranian crude hitting the market this summer.

    Taken together, Morgan Stanley estimates that OPEC spare capacity will fall to ~2mb/d in 2022, but global crude inventories will still fall by ~1mb/d. Though the bank highlights that refining margins are multiples above historic highs (VLO) (PSX) (MPC), it is assumed that runs will increase by ~2mb/d from current levels to meet product demand. Which begs the question, if there's ~2mb/d of excess capacity in the system, why aren't refiners responding now to elevated margins? And if there isn't excess refining capacity in the system, what will happen to refining margins when summer driving season rolls around?

    CLF +8.60%Apr. 22, 2022 9:25 AM ET5 Comments

    Cleveland-Cliffs (NYSE:CLF+6.9% pre-market Friday after easily beating expectations for Q1 earnings and revenues, as prices for the company's steel rose even as spot prices for steel dropped in the quarter.

    Q1 net income skyrocketed to $801M, or $1.50/share, from $41M, or $0.07/share, in the year-earlier quarter; adjusted EBITDA nearly tripled to $1.45B from $513M a year ago.

    Spot prices for hot rolled coil averaged ~$1,200/ton during Q1, down from more than $1,700/ton in Q4 2021, but Cleveland-Cliffs' (CLF) average selling price edged higher to $1,446/ton from $1,423/ton in Q4.

    "Despite the decline in spot prices for steel from Q4 to Q1 and its lagged impact on our results, we were able to continue to deliver strong profitability," Chairman, President and CEO Lourenco Goncalves said, adding that the company expects to set another free cash flow record in 2022.

    Wall Street is forecasting ~$2.9B in free cash flow for the current year, after Cleveland-Cliffs (CLF) generated $2.1B FCF in 2021.

    Cliffs (CLF) raises its full-year average selling price estimate by $220/ton to $1,445/ton, driven by higher than expected prices on renewals of fixed-price contracts resetting April 1, higher expected spreads between hot-rolled and cold-rolled steel, and a higher futures curve that currently implies an average hot-rolled coil price of $1,300/ton for 2022.

    Cleveland-Cliffs (CLF) shares have gained 35% YTD and 73% during the past year.

    TWTR +3.31%Apr. 22, 2022 9:16 AM ET15 Comments

    Republicans on the House Judiciary Committee are pressing Twitter's (NYSE:TWTR) board to preserve all records related to billionaire Elon Musk's bid to buy the company – a move that could lay groundwork for a congressional investigation if the GOP wins back the majority in the midterm election, CNBC reports.

    They've sent Twitter's chairman, Bret Taylor, a "formal request that you preserve all records and materials relating to Musk’s offer to purchase Twitter, including Twitter’s consideration and response to this offer, and Twitter’s evaluation of its shareholder interests with respect to Musk’s offer."

    The letter is signed by 18 House Republicans led by Judiciary Committee Ranking Republican Jim Jordan.

    “Decisions regarding Twitter’s future governance will undoubtedly be consequential for public discourse in the United States and could give rise to renewed efforts to legislate in furtherance of preserving free expression online," the letter continues.

    Twitter has become something of a political football for Republicans who have repeatedly criticized the company, alleging censorship.

    Twitter (TWTR) is 0.9% higher premarket.

    BXP +0.54%Apr. 22, 2022 8:57 AM ET

    In reassessing the office REIT space, Mizuho analyst Vikram Malhotra upgraded Boston Properties (NYSE:BXP) to Buy from Neutral as it's "relatively better skewed than other office REITs," according to a note issued on Friday.

    The analyst sees minimal execution risk and upside for occupancy in 2022 for BXP. "We also see the potential for higher pre-leased rates at the company's development properties," Malhotra wrote in a note to clients. BXP now replaces Kilroy Realty (KRC), also rated Buy, as his top pick in office REITs.

    Boston Properties (BXP) stock rises 0.7% in Friday premarket trading.

    For the sector overall, he's turning more bearish compared with his previous tactically bullish view, giving it an Underperform rating.

    Office REITs have outperformed YTD with investor optimism on return to work and improving fundaments. "We see two underappreciated risks — the longer-term impact from remote work and a potential economic slowdown amid weak Office fundamentals," Malhotra wrote. (See the YTD stock performance of BXP, Vornado Realty Trust (VNO), SL Green (SLG), Kilroy Realty (KRC), and Cousins Properties (CUZ) in this chart.)

    Mizuho's base case calls for remote work comprising 15% of the work force over the next few years, almost three times pre-COVID levels. In addition, he sees structurally higher levels of vacancy as an underappreciated risk.

    He initiates coverage of Vornado (VNO) at Underperform and SL Green Realty (SLG), Cousins Properties (CUZ), and Highwoods Properties (HIW) at Neutral.

    Malhotra's Buy rating on Boston Properties (BXP) is more bullish than the Quant rating of Hold and aligns with the average Wall Street rating of Buy.

    SA contributor AR Parker outlines reasons why Boston Properties' (BXP) current strong financials may not continue in the long term


  5. Phil – have you been tracking the new US probe into imposing tariffs on solar panels? It seems Auxin Solar in California complained that Chinese companies are setting up facilities in SE Asia to circumvent US tariffs. The NextEra earnings call yesterday complained a lot for this, and pretty much all solar stocks are down. Apparently there could be pricing uncertainty till 2025. 


  6. SQQQ/Nom – I don't know how you got there but the key is starting out with a realistic spread.  There are no more Jan $5 – 10s so I imagine you still have the old, pre-reverse options.  In general, the idea of a hedge is INSURANCE – we aren't supposed to make money on them if our longs are doing well but we do try not to lose too much.  

    At the moment, SQQQ Jan $40s are $14 and a 20% drop in the Nas would be a 60% pop in SQQQ so 1.6 x $40 is $64 – so that's our target zone.  The Jan $55s are $10.80, the Jan $60s are $10 and the Jan $65s are $9.20.  So the Jan $40/60 bull call spread is net $4 and it's $3 in the money but the actual Jan $40s are $10.80 so, if the SQQQ doesn't perform and the Jan $40s drop to $5, then you can set up a 2024 or 2025 spread that will cover the short Jan $60s so the cost of the RENEWAL on the insurance is low over time.  

    Solar Tariffs/Rn – Biden is in the middle of investigating Trumps asinine tariffs, which is pretty much because of Auxin's petition but Auxin only cares that Chinese companies be punished for manufacturing elsewhere but, to me, that's BS because the point of tariffs is to punish countries, not companies.  These guys just want to eliminate competition entirely.  The fact that Biden isn't just arbitrarily slapping on more tariffs is what's bothering the US solar companies – who were hoping for a less competitive field (and more Government stimulus).  

    Biden cares about more people getting solar energy, not where it comes from – that's the gist of what's happening.  

    Last year's Energy Dept report through 2035 was looking for 40% of our grid to be powered by solar – we're not going to get there by eliminating Auxin's competition.  We'd LIKE to get there using US-made solar panels but a lot of work needs to be done – hence the current studies being conducted.  

    The Republicans have blocked incentives to build more domestic solar infrastructure and blocking that is just another way to help the current energy companies so, of course, Manchin is voting with the GOP on these as well.  

    Meanwhile, the climate keeps getting warmer and, if the GOP take power in November – it's probably game over for any chance we have of containing it.

    stop global warming Animated Picture Codes and Downloads  #121239802,716297987 | Blingee.com

    Net-zero commitments could limit warming to below 2 °C

    Remember – 1.5 degrees is considered catastrophic – that's the very bottom assuming maximum effort going forward.  4 more years of Trump/GOP and we'll be at 3 degrees around 2050.  It doesn't seem like a lot but it's going to be a rolling disaster of biblical proportions if we let that happen.

    Comparing climate impacts at 1.5°C, 2°C, 3°C and 4°C - Climate Nexus

    Weak Doha climate deal leaves world on pathway to 3°C by 2040

    Why 2C of global warming is so much worse than 1.5C | World Economic Forum

    It's funny because, when I was a kid in the 70s and 80s, I read tons of science fiction and they used to envision all sorts of future problems – including warming but, sadly, they never envisioned the passivity of the people as this happens all around them.  I guess back then, we thought of course people would come together and face down a crisis like this but who'd have thought there would be these massive global networks convincing the people NOT to do anything about it and that entire political parties would come to power supporting the entities that are destroying the planet who, themselves, contribute to these parties to make sure they can keep profiting off the damage they cause.

    It just seems too insane for a story, doesn't it?  


  7. Meanwhile, another down day on the indexes.  

    STP back to $608,323:

    Security Value: $587,703Cash on Hand: $20,621Total Value: $608,323Portfolio Ret.: 204.2%

    That's up $53,000 since Wednesday but we used a lot of cash getting more bearish, so we'll have to cash something soon.  

    We sure need the hedges as the LTP got crushed since the 14th, down about $300,000:

    Security Value:  $387,268
    Cash on Hand:  $1,770,488
    Total Value:  $2,157,755
    Portfolio Ret.:  331.6%

    As usual, the rising VIX hits us pretty hard since we sell so much premium but this is getting close to where I want to really pull the plug if we can drop so much in just over a week.  

    The NFLX puts hit us for $40,000, W $10,000, BABA $30,000,  BNTX $56,000, FB $20,000, LABU $25,000, MRNA $40,000 and PFE $10,000 so blame BioTech for most of our losses and NFLX we think will come back and $150,000 worth of BioTech I'm going to be inclined to roll along so not too bad.  

    Quick checks like this are a good way to see where you have a weakness to work on and, more importantly, we can see that it's really just one sector and the rest of the portfolio is holding up pretty well.


  8. Hopefully we're bottoming out at 4,300 on /ES (for now).  Europe hit the 2.5% mark into the close and that's NOT GOOD but we can make some excuse for US weakness on Dollar strength.

      

       

    And all that, of course, is the result of a 0.5% rate hike now being firmly baked in next month.  Maybe more:

    SPY -1.57%Apr. 22, 2022 4:53 AM ET182 Comments

    Seventy-five basis points is the new 50 basis points.

    A relentlessly hawkish Federal Reserve is ramping up market expectations for big interest rate hikes that would've been considered unthinkable (and market crippling) just two months ago.

    Nomura said Friday that the FOMC will hike the fed funds rate by 75 basis points in June and July after a 50-basis point rise in May. That would bring the rate up to 2.25%, a phenomenal amount of tightening given that the Fed was still easing by buying assets as recently as March.

    The shift in market expectations for even more tightening came after Fed Chairman Jerome Powell said at an IMF debate Thursday that a 50-basis-point hike in May was "on the table." Perhaps even more pertinent to the markets, he said there was some merit in front-loading tightening with the upside risks to inflation and a historically tight labor market.

    Traders quickly priced in more aggressive hiking as Powell spoke, with CME FedWatch now pricing in an 85% chance the benchmark rate will rise to a range of 1.5%-1.75% after the June meeting. That would mean a 75-basis point hike in June if May gets the expected half-point boost.

    Chatter of a hike of as much as 75 basis points started last week when St. Louis Fed President James Bullard said that he wouldn't rule one out.

    Before Powell spoke yesterday, San Francisco President Mary Daly added some fuel to the fire, saying she would be talking to colleagues about whether a hike of 25, 50 or 75 basis points was needed.

    In fed funds futures, the market is now pricing in about 270 basis points of tightening for 2022, topping 250 seen in 1994, with expectations now for the rate to hit 3% by March 2023, according to Deutsche Bank.

    Deutsche Bank's chief economist said yesterday that the Fed could hike rates to as high as 5% by the time it's done tightening, a level not seen since 2006.

    Quotes: “Our U.S. team has changed their Fed call,” Rob Subbaraman, Nomura head of global markets research, wrote in an email seen by Bloomberg. “They now expect the FOMC to be even more front-loaded with rate hikes, in order to get the funds rate back to neutral as expeditiously as possible to avoid a wage-price spiral.”

    “We recognize Fedspeak has not outright endorsed a 75 basis point hike yet, but in this high inflation regime we believe the nature of Fed forward guidance has changed – it has become more data dependent and nimble,” he said.

    "We are in a new environment, dancing to a new tune, and the incremental mean reversing way of thinking about inflation and rates is likely to be misleading," Deutsche Bank chief economist David Folkerts-Landau said. "Inflation is seeping into expectations, and labor markets are historically tight."

    What this means for stocks and bonds: The selloff in Treasury bonds accelerated as expectations for even more hawkish policy rose.

    The 10-year Treasury yield (NYSEARCA:TBT) (TLT) hit 2.95% at the high of the day Thursday and is back up at that level this morning. The 2s10s curve flattened and the 2-year yield (SHY) is up 7 basis points to 2.76% in early trading today.

    Stocks started Thursday with a rally, but the big rise in rates (especially real rates) reversed the trend and the S&P (SP500) (NYSEARCA:SPY) fell 1.5%, while the Nasdaq 100 (NDX) (QQQ) lost 2%.

    Worries will increase in the equities market if the Fed slams on the brakes as Nomura predicts.

    Investors "are in a new investing world," eToro strategist Ben Laidler said. "The sharp and never-ending repricing of Fed interest expectations and high-for-longer inflation has driven bond volatility twice that of equities, and a tightening US financial conditions index."

    "This drives lower valuation and a Growth to Value rotation," he added. "Equities are being stress-tested by surging bond yields. But there is a limit to how high yields will go. The Fed has more yield control now with its huge balance sheet runoff, whilst high debt levels, and wide yield gap with global markets are constraints."

    BofA said stock bulls are now an "endangered species," but that is a contrarian bullish signal.

    AXP -1.14%Apr. 22, 2022 7:25 AM ET1 Comment

    American Express (NYSE:AXP) Q1 earnings beat the average analyst estimate and the company reaffirmed its 2022 guidance after travel and entertainment spending returned to prepandemic levels at the end of the quarter.

    The company added 3M new proprietary cards in the quarter; U.S. Consumer Platinum and Gold Cards and U.S. Business Platinum Cards reached all-time highs for the quarter.

    Travel and entertainment spending jumped 121% Y/Y on a foreign exchange-adjusted basis, and essentially reached prepandemic levels for the first time in March, driven by strength in consumer travel, the company said.

    American Express (AXP) shares are rising 0.7% in Friday premarket trading.

    The credit card company still expects 2022 EPS of $9.25-$9.65 (vs. consensus of $9.73) and revenue growth of 18%-20%.

    Q1 EPS of $2.73, beating the average analyst estimate of $2.47 rose from $2.18 in Q4 2021 and slipped from $2.74 in Q1 2021.

    Q1 consolidated total revenue net of interest expenses were $11.7B aligns with $11.7B consensus; compares with $12.1B in Q4 and $9.07B in the year-ago quarter.

    Total network volumes in Q1 of $350.3B increased 30% from 2020; billed business rose 34% Y/Y; processed volumes rose 12 % Y/Y

    Q1 total provision for credit losses benefit of $33M vs. benefit of $53M in Q4 2021 and benefit of $675M in the year-ago quarter.

    Q1 consolidated expenses were $9.1B, down from $9.8B in Q4, but up from $6.7B in the year-ago period, reflecting higher customer engagement costs primarily driven by a 30 percent increase in network volumes.

    Global Consumer Services Group Q1 pretax income of $1.7B vs. $1.3B in Q4 and $2.1B in Q1 2021.

    Global Commercial Services Q1 pretax income of $804M vs. $706M in Q4 and $675M a year ago.

    Global Merchant and Network Services Q1 pretax income was $687M vs. $508M in Q4 and $385M a year earlier.

    Conference call at 8:30 AM.

    Earlier, American Express GAAP EPS of $2.73 beats by $0.28, revenue of $11.73B beats by $70M

    PFE -2.00%Apr. 22, 2022 4:58 AM ET

    The World Health Organization (WHO) recommended the use of Pfizer's (NYSE:PFE) antiviral pill Paxlovid to treat patients with mild and moderate COVID-19 who are at the highest risk of hospital admission.

    The WHO suggested not to use the drug in patients at lower risk, as the benefits were found to be negligible, the agency said in an April 22 press release.

    The WHO called the drug 'best therapeutic choice for high-risk patients to date' but noted that availability, lack of price transparency in bilateral deals made by the producer, and the need for prompt and accurate testing before administering it, are turning the therapy into a major challenge for low- and middle-income countries.

    The agency said Paxlovid (a combination of nirmatrelvir and ritonavir) was recommended for patients with non-severe COVID-19 who are at highest risk of developing severe disease and hospitalization, such as those not vaccinated, older or immunosuppressed patients.

    The recommendation was backed by new data from two trials involving 3,078 patients. The data showed that the risk of hospitalization reduced by 85% after taking the drug.

    The WHO, however, noted that it was concerned that — as occurred with COVID-19 vaccines — low- and middle-income countries will again be pushed to the end of the line when in terms of access to the therapy.

    Lack of transparency on the part of the originator company was making it difficult for public health organizations to get accurate information on the availability of the drug, which countries are involved in bilateral deals and the price they are paying for the drug, the agency added.

    In addition, the WHO noted that a licensing agreement made by Pfizer with the Medicines Patent Pool has limited the number of countries that can benefit from generic production of the drug.

    The agency said Paxlovid, will be included in the WHO prequalification list but its generic is not yet available. Several generic companies (several of which are covered by the licensing deal between Pfizer and Medicines Pool) are in discussion with WHO Prequalification but may take time to comply with international standards to supply the drug internationally.

    WHO urged Pfizer to make its pricing and deals more transparent and to enlarge the geographical scope of the license with the Medicines Patent Pool so that more generic drugmakers may start to produce the therapy and make it available at affordable prices.

    In March, it was reported that Pfizer (PFE) was expected to provide ~10M courses of Paxlovid to low and middle-income nations in 2022. Separately, Pfizer had agreed to supply Paxlovid to Africa Centres for Disease Control and Prevention.


  9. VLO -0.63%Apr. 21, 2022 6:54 PM ET113 Comments

    Valero's (NYSE:VLO) trading division was the largest buyer of crude oil in the second sale from the U.S. Strategic Petroleum Reserve that was part of the Biden administration's attempt to combat rising energy prices after Russia invaded Ukraine.

    The Department of Energy said Thursday it awarded 12 contracts for 30M barrels of oil from the SPR that were marked for May-July delivery, and it plans to offer another 40M barrels of SPR crude May 24 for delivery in June and July.

    In addition to the 6.85M barrels awarded to Valero, other successful bidders included 4.05M barrels to Motiva Enterprises, 3.6M to Exxon Mobil (XOM), 2.75M to Shell (SHEL), 2.6M to Glencore (OTCPK:GLCNF) (OTCPK:GLNCY), 2.5M to Phillips 66 (PSX) and 2.4M to Marathon Petroleum (MPC).

    Benchmark crude prices have stayed mostly above $100/bbl since the war in Ukraine started despite emergency stock releases by the U.S. and other countries.

    Seeking Alpha head of quantitative strategies Steven Cress recently tapped Valero (VLO) as one of his top five S&P 500 stocks to buy now.


  10. MRNA has earnings on May 4th and our LTP position is:

    MRNA Short Put 2024 19-JAN 200.00 PUT [MRNA @ $143.87 $-0.63] -5 10/5/2021 (637) $-12,500 $25.00 $53.30 $-73.00     $78.30 $0.30 $-26,650 -213.2% $-39,150
    MRNA Short Put 2024 19-JAN 180.00 PUT [MRNA @ $143.87 $-0.63] -10 1/13/2022 (637) $-40,150 $40.15 $23.53     $63.68 - $-23,525 -58.6% $-63,675
    MRNA Long Call 2024 19-JAN 150.00 CALL [MRNA @ $143.87 $-0.63] 20 1/21/2022 (637) $120,000 $60.00 $-14.85     $45.15 $-0.77 $-29,700 -24.8% $90,300

    We've rolled it down and bought back the short calls and sold more puts – nothing has helped so far.  The company is at $58Bn at $143 and they have $10Bn in the bank and no debt.  They are supposed to earn $11.5Bn this year but that's being questioned as some countries are electing not to go with booster shots – which is what's been causing the recent panic.  

    If we assume they only make $6Bn this year and then $3Bn next year, that's still very nice against net $48Bn in valuation (less cash) and it will be more like net $40Bn as the cash keeps piling up.  

    In 2019, MRNA was losing $500M and they had a $20Bn valuation based on the promise of what they can do and then, in 2021, they proved they could actually do it and made $12Bn in one year by rapidly addressing a pandemic.  If we're pessimistic and assume this ends up being $20Bn in revenues for this cycle and we assume that only once per decade something like this comes up – that's still $2Bn/yr on the average and it makes the current valuation pretty reasonable.  Then we take into account that they might have some evergreens over the years (like PFE, etc) and all they really have to do is be a little successful over the next few years to justify the valuation.

    Unless they have some horrible side-effects and get sued – that's likely to be the worst case and the best case is they figure out a cure for something major and double or triple in size.  So I think if we're not worried about losing more – we can just focus on what we can get out of this.  

    We have 10 short 2024 $200 puts we sold for $25 so net $175 and 5 short 2024 $180 puts we sold for $40 for net $140 and those are currently showing us – $103,000 but I don't think $175 is unrealistic and the May $200 puts are $58 and the 2024 $170 puts are $58 so if we can roll down $30 for free – I'm very confident we'll eventually get out of the short puts over time.

    That means we only need to focus on the 20 2024 $150 calls and again, I think $200 is very obtainable and they'll be $50 but they are $45 now so that won't be terribly exciting.  I'd rather wait for the 2025s to come out but the MRNA 2024 $120 calls are $55 so $10 to roll down $30 in strike is too good to pass up, so let's do that in the LTP.    We WILL pay for it later but the 2024 $270 calls are $18 and just 10 of those would pay for most of the roll and leave us in a $140,000 spread (currently net -$12,525) and, at $143, we're $46,000 in the money.

    Also, if we have 20 longs and 10 short calls, we can sell short-term calls like the July $170 calls for $9.  Selling 10 of those for $9,000 won't impact our upside at all and we're only using 84 our of 637 days so 6 sales like that for $54,000 will go a long way towards getting us back to green on the spread while we wait for the $152,525 turnaround.

    That's why I don't worry too much about these dips.  As long as we start off with good value stocks – these adjustments are pretty automatic.


  11.  How to Judge COVID Risks and When to Wear a Mask Scientific American asks experts in medicine, risk assessment and other fields how to balance the risks of COVID with the benefits of visiting public indoor spaces (Scientific Americansee also It Makes Total Sense if You Still Don’t Want to Get COVID Between people going maskless on planes and politicians attending fancy dinners, there’s a lot of pressure to just move on. (Slate)

    Business Leaders Know the Climate Status Quo Is Untenable New carbon removal funds show the private sector is stepping up on climate, and that’s reason for optimism. (Bloomberg)

    America Gave Up on Overtime—and It’s Costing Workers $35,451 a Year Overtime pay was one of the biggest deals of the New Deal reforms—along with the prohibition of child labor and the establishment of a federal minimum wage. But sometime around 1975 the prosperity of working Americans was dramatically severed from that of the economy as a whole. (Time)

    How America’s Farmers Got Cut Out of the Supply Chain As shipping companies concentrate on the most lucrative routes from China to California, almond growers are struggling to transport their wares. (New York Times)

    What’s in store for empty downtown office buildings? Business districts have a vacancy problem. The white-collar workers around the US who fled city centers at the start of the pandemic haven’t all come back yet. Even as some large employers like Google and Apple start to roll out back-to-office policies, it’s looking like many of them may never return. (Quartz)


  12. We're getting next week's correction today! What's left for next week then??


  13. Apparently, nothing is good:

    POLL: Macron Leads Le Pen 57%-43% – Ipsos Election Poll

    Next week/Pman – This could be just the warm-up.  There's a reason we jacked the hedges up 30%.

    Bank of America out with a note saying equity outflows are just getting started. bloomberg.com/news/articles… BofA analysts point to the Fed's response to “extreme inflation." “75 basis points is the new 25 basis points.”

    BitCoin suffering from Spitting Cobra follow-through:


  14. KRBN still holding up 


  15. failed crash and burn GIF by truTV’s Bobcat Goldthwait’s Misfits & Monsters

    This Is Fine GIF

    KRBN/Stock – Should have bet the farm on that in March.


  16. Historically, it's been the 10 at 3% that's cracked the market and we are almost there. At least the dividend yield of the market would have to adjust to the 10 rate at some point.


  17. Not much of a finish – could be rough next week – especially if GDP or Big Tech disappoint.  

    • Tues:  Durable Goods, Case-Schiller and Consumer Confidence – Not a good trio.
    • Wed: Pending  Home Sales (should be another disappointment)
    • Thurs:  GDP
    • Fri:  Personal Income and Spending, PCE Prices, Chicago PMI and Michigan Sentiment

    All dwarfed by whatever Big Tech reports.

    Have a great weekend, 

    - Phil


  18. Phil you were spot on with the CMG correction call a few months ago. What else has an unsustainable P/E that will have an outsized correction within the (coming) market correction?


  19. ISRG






  20. Inflation is not easy to fix. Most government solutions fail.