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Fallback Friday – The Week We Went Nowhere

This has gone just as expected.

We opened the week at 4,250 on the S&P (/ES) and we're at 4,241 this morning.  Anything that happened in-between is just noise, which we are able to ignore by focusing on our Bonce Charts™. Back on the 19th, it was "Technical Tuesday – Indexes Stuck in a Danger Zone" and that was at 4,400 – 3.5% ago.  

If not for yesterday's irrational end-of-month window-dressing, we'd be starting at finishing the month at the lows and adding even more hedges than we already did.  That's right, just like that – April is over and it's already May so we're already in the middle of Q2 and the war is still on and there is still rampant inflation and China is still locked down again.  Our GDP was -1.4% for Q1 and, so far, Q2 is not looking much better.  

Two consecutive quarters of economic contraction is called a RECESSION – the one they say won't happen until next year.  Well, they can't be more wrong than having it happen in the very first two quarers of 2022, can they?  We'll jump off that bridge when we come to it but, for now, we'll keep buffing up our hedges – as we did in our Alert to Members yesterday.

On the good news front – China is taking their foot off the necks of their Big Tech companies, hoping their recovery will boost their teetering economy.  That's giving companies like BIDU, DIDI and BABA 10-15% boosts in pre-market trading and BABA is another position that's been killing our Long-Term Portfolio (LTP), with 40 long Jan $120 calls that should be back over $20 this morning and hopefully there's a nice short squeeze we can sell covers into.  

BABA Short Put 2024 19-JAN 150.00 PUT [BABA @ $90.91 $2.59] -15 2/16/2022 (630) $-69,000 $46.00 $19.85 $2.95     $65.85 $-4.00 $-29,775 -43.2% $-98,775
BABA Long Call 2024 19-JAN 120.00 CALL [BABA @ $90.91 $2.59] 40 3/18/2022 (630) $99,600 $24.90 $-7.68     $17.23 $0.89 $-30,700 -30.8% $68,900

As you can see from our short puts, we set a target price of $150 in two years as that would be $400Bn in market cap and they are dropping about $22Bn to the bottom line so 20x for the company which is growing rapidly at $130Bn in sales vs $540Bn for AMZN – so plenty of room for growth.  That was our logic in March but the Chinese Government has since been relentless in their attack on tech and I don't think we can trust them not to go back to annoying them as soon as their economy regains some footing (if it ever does) – so I'm not longer thinking of BABA as a long-term hold, much as I like the company.  

Speaking of AMZN at $1.5Tn in market cap with $25Bn in profits (60x earnings), they are down 10% this morning ($150Bn!) as Operating Cash Flow dropped 41% from last year to $39.3Bn and last Q it was $46.3Bn so serious deterioration with Cash from Operating Activity falling $2.8Bn vs gains of $12.4Bn expected by Leading Economorons.  Again, the big picture here is that Analysts are idiots and all this sunshine they are blowing up your ass about an improving economy is BULLSHIT!!!  Clear enough summary?  

We sold 2 May $3,300 calls on Feb 4th for $33,000 in our Butterfly Portfolio, so we're thrilled with this development BUT we'll be looking for an opportunity to sell puts now as AMZN is being affected by supply chain issues and inflation they haven't passed on yet and, of course, the pandemic gave them a huge boost from stay-at-homes and that's easing off so ANY growth they have this year is actually amazing.

That's right Bezos and Company are just another bunch of Economorons who were extrapoloating their pandemic gains out to post-pandemic years and gave unrealistic forward guidance and Analysts are people who weren't smart enough to be Economorons so it's just a total disaster of expectations and nothing to do with the continuing ramp-up of growth in this dominant company.  Still, we'll wait for the Downgrade Police to have at them before we place our short put bets.  


Sadly, this is exactly what most Analysts do – they are just as lazy and stupid as the person in your office who drives you crazy with their incompetence.  The problem with most of these Analysts is that they generally haven't actually worked in the fields they are analyzing, so they have no more than a basic academic knowledge of how these companies actually make (or lose) money.  You know Sally in your office is an iditot because you understand her job and KNOW what she's doing wrong but you don't know the supply chain issues faced by GM or the pricing pressure felt by the dealerships so you let another Sally tell you any sort of BS and you kind of treat it like a fact, don't you?   

Get out of that habit and your trading profits will soar!  

Meanwhile, this is why I share my readings and observations with you and don't just throw out stock picks – you should understand WHY I am favoring certain trades, shoudn't you?  This moring, Personal Income came in up 0.5%, which puts more pressure on Corporate bottom lines and Personal Spending was up 1.1% (but not on AMZN, apparently) with PCE prices up 0.9% so people aren't buying more stuff, they are just paying more money for the stuff they buy and they are dipping into their credit cards and savings accounts to do it – good for V, MA and AXP, bad for savings banks and the overall economy.  

Real Disposable Income dropped another 0.2% in February and there's no indication March will be any better when we get that report at the end of May – that's half a year shot already…  The Employment Cost Index is also racing higher and they haven't even begun offering better benefits yet so lots and lots of pain ahead for employers as it's kind of hard to see what magic beans are going to fix the labor shortage – especially if the Republicans are successful in keeping Biden from re-opening the boarders to people who would love to come here and work for a living.

But they are brown people so they don't want them.  Maybe that's unfair as Ukranians are white people and the GOP doesn't want them either, do they?  They just don't like people, I guess.  7 of the 39 people who signed the Constitution of this country were immigants including Alexander Hamilton and James Wilson, two of the three men who crafted the laws.  When did we decide we hate immigants so much – wasn't this "The land built by immigrants" at one point?  It still is judging by the landscapers and builders in my neighborhood…

Anyway, so when we see data and we don't see how it's going to improve – we need to make a mental note as it will affect the conditions going forward – especially when it's a major GDP component like Consumer Spending, which is 60% of our Economy.  Let's be very careful out there – I'm mostly surprised every day I wake up and things haven't hit the fan at this point…

"WTF Was That!" – Stocks Explode Higher As US Economy Heads Into Recession

Alarmed by Russia’s Aggression, Europe Rethinks Its China Ties.

Ukraine Latest: Biden Seeks Aid, Power to Seize Russian Wealth

Biden’s Ukraine Aid Risks Slowdown as GOP Balks at Covid Tie-In.

Manchin Rejects Biden’s EV Tax Credit as ‘Ludicrous’

Shanghai Covid Cases Rise For First Time in Six Days

Rumors of Stagflation in First Quarter GDP

Yen Traders Brace for Choppy Holiday Week With Fed Poised to Act

Investor Who Called Housing Top and Bottom Says It's Time to Sell

‘Buyers of a median-price home are looking at a monthly mortgage payment that is almost 50% higher than it was a year ago.’ The 30-year mortgage rate dips slightly to 5.1%

The Permian Basin Oil Field Is Running Out of Workers, Materials—and Cash

Apple Loses All After Hours Gains, Slides After Warning Supply Constraints Will Cost $4-$8 Billion

Have a great weekend, 

- Phil


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  1. Good morning!

    Last day of the month so can't read much into anything that happens.  Selling into the close would be a bad sign though.



    Tempting to short Oil and Gasoline but holiday weekend around the corner makes it very dangerous.  Huge SPR releases coming in May should be bearish though.

    How low can bonds go???


  2. forget bonds, how low can gold go?

    Buying BBN under 20 seems like an OK idea though. Might get 10-30% capital gain on top of 7%+ yield over 2-3 years

  3. Good Morning.

  4. Is the U.S. Economy Headed for a Slowdown?

  5. “We think any company that has an economist has one employee too many,”

    LOL BDC!  

    I disagree, however, that these things are unknowable – just that they are very hard to know and very few people have the right skill set to figure it out – certainly not any of the people they end up asking…

    The blind leading the blind is the overall forecasting model.

    You have to first understand how things are interconnected but, to do that, you have to have a micro view of how each individual component actually works on the ground – that's a tough combination.  You then have to understand how the data you are reading is being collected and extrapolated and correct for that and then you have to understand the prejudices (or wishful thinking) of the people who are gathering the data, interpreting the data and making the forecasts and then you have to be very aware of Geopolitical Risks as well as local politics and how those winds could wind up being laws (taxes, stimulus, rates, etc…) that impact the best laid plans of CEOs and boards.

    You can see why we have such wide-ranging discussions at PSW – it's a lot of stuff to take in!  

    Oh yes, and remember not to take it all too seriously!  

  6. AMZN bouncing off $2,500.  – 12.5% is an overshoot on 10% but if you look at a long-term chart, they consolidated around $1,000 and then $2,000 but blasted right over $3,000 without a proper pullback and $3,700 was idiotic (hence our shorts).  If we consider the proper range to be $2,000 to $3,000 then this is a $500 drop and we look for a $100 bounce to $2,600 (weak) and $2,700 (strong).  We can't tell until next week but if they have trouble at $2,600 – it's likely they are going all the way back to $2,000 but I'd be very comfortable there.

    So, if I'm going to pick a short-term put to sell, we can start by seeing what Jan put nets me in at $2,000, where I don't mind owning them long-term.   The $2,150 puts are $150 so net $2,000 so that's my rolling target in case we fail.  Now, we just had earnings so end of July would be next ones so we can sell July puts as we'll still get earnings premium after they expire on the next sale.   The July puts that are $150 are the $2,500s – that seems way too risky but the $2,200 puts can be sold for $60 so that's the one I want to keep an eye on.   

    Hopefully AMZN goes a bit lower and we get to sell 2 of those for more money in the butterfly portfolio and we're very comfortable that we can roll out of trouble.  In fact, the Jan $1,800 puts are $62.  So as long as we don't mind being obligated to buy 200 shares of AMZN for net $1,738 ($347,600), we can sell 2 July $2,200 puts for $12,000.  As I said, I hope we can do better but, since we now know we're going to collect at least $12,000 selling puts and we are making $33,000 from short calls (we were a lot more sure about those), we should consider improving our position:

    AMZN Long Call 2023 20-JAN 3,300.00 CALL [AMZN @ $2,891.93 $0.00] 6 1/15/2021 (266) $330,000 $550.00 $-343.18 $211.12     $206.83 $0.00 $-205,905 -62.4% $124,095
    AMZN Short Call 2023 20-JAN 3,800.00 CALL [AMZN @ $2,891.93 $0.00] -6 1/15/2021 (266) $-238,200 $397.00 $-306.55     $90.45 $0.00 $183,930 77.2% $-54,270
    AMZN Short Call 2022 20-MAY 3,300.00 CALL [AMZN @ $2,891.93 $0.00] -2 2/4/2022 (21) $-33,000 $165.00 $-143.65     $21.35 $0.00 $28,730 87.1% $-4,270

    I think, given the situation, we should cash our $3,300 calls at $124,095 and leave the short calls to expire worthless (and pay us $54,270) and pick up 8 2024 $2,500 ($540)/3,000 ($340) bull call spreads for $200 ($160,000) so we're spending net $35,905 for the extra year and $800 in position.  Can we make $35,905 selling short calls over the next 20 months?  Hell yes.  

    So that's the plan and, most likely we won't cash the $3,300s right away as we'll hope for a bounce to sell into but let's make sure there's a bottom first and we'll re-visit this plan next week.  If all goes well we'll have 8 x $500 spreads ($400,000 potential) covering 6 short Jan $3,800s (all-time high in 6 months?  Doubtful.) and then we can sell 2 or 3 shorter-term calls for income along the way and get more aggressive once the short Jan calls expire so lots and lots of money to be made – plus the put sales, of course – we don't even have a long-term put so that's just easy money (and balances out the short calls). 

  7. Let's say S&P 2950 by September and then it's a slow long-rebuilding process at that time.

  8. We'll see .  Today is getting sadder and sadder.  

    Nasdaq giving it all back:

    Clearly "THEY" just spiked it up so they could sell it.  Yet there will never be an investigation…

  9. VZ- where is the bottom?

  10. If you don't have a AMZN position would you recommend starting one? What would you recommend?

  11. BRK/B- annual meeting tomorrow streaming on times are ET


    2022 Berkshire Hathaway Annual Shareholders Meeting, Sat., April 30

    9:45 a.m. – 10:15 a.m.: Pre-show anchored by Becky Quick and Mike Santoli

    10:15 a.m. – 1 p.m.: Streaming Morning Session of Annual Meeting

    1 p.m. – 2 p.m.: Halftime show anchored by Becky Quick and Mike Santoli 

    2 p.m. – 4:30 p.m.: Afternoon Session of Annual Meeting

    4:30 p.m. – 4:45 p.m.: Post-show anchored by Becky Quick and Mike Santoli 

    4:45 p.m.:  Formal Berkshire Hathaway Annual Meeting

  12. pstas

    for me at 45

  13. VZ long at 29

  14.  Cathie Woods on CNBC @1, bet shes more bullish now than 12 months ago since the stocks her fund holds have been halved. 


  15. Phil/INTC – After seeing earnings would you initiate an INTC spread?  Thanks

  16. Hi Phil,

    What are your thoughts on VZ and CMCSA? Is it safe to start selling 2024 puts or do you see further leg downs?


  17. Nowhere to Hide – The Irrelevant Investor

  18. VZ/Pstas – Makes T look good.  

    AMZN/Millard – Not one of my favorites.  We have it in the Butterfly simply because you can collect so much money selling short puts and calls it's worth playing with but you need a TON of margin to play with on that one as it can burn you in either direction.  As noted above, once we move our Butterfly play around – that would be a nice place going forward.  

    BRK.B/Pstas – I think I will keep that on in the background tomorrow.  

    Woods/Kustomz – Pretty much a unicorn fund – and not in a good way.  

    INTC/Jeff – They are down on cautious outlook, which is no surprise to me.  In the Money Talk Portfolio, our INTC position is:

    INTC Short Call 2024 19-JAN 55.00 CALL [INTC @ $43.80 $-3.04] -20 12/1/2021 (630) $-13,700 $6.85 $-2.85 $-5.55     $4.00 $-1.08 $5,700 41.6% $-8,000
    INTC Short Put 2024 19-JAN 45.00 PUT [INTC @ $43.80 $-3.04] -10 12/1/2021 (630) $-7,000 $7.00 $1.25     $8.25 $0.85 $-1,250 -17.9% $-8,250
    INTC Long Call 2024 19-JAN 40.00 CALL [INTC @ $43.80 $-3.04] 20 2/17/2022 (630) $24,400 $12.20 $-2.73     $9.48 $-2.13 $-5,450 -22.3% $18,950

    So it's not like we were expecting much and, so far, we're not getting much.  Still good for a new trade then.

    In the LTP, we're a bit more aggressive and paying the price for it:

    INTC Long Call 2024 19-JAN 40.00 CALL [INTC @ $43.86 $-2.98] 40 11/1/2021 (630) $52,000 $13.00 $-3.53 $13.35     $9.48 $-2.13 $-14,100 -27.1% $37,900
    INTC Short Put 2024 19-JAN 45.00 PUT [INTC @ $43.86 $-2.98] -20 11/1/2021 (630) $-13,000 $6.50 $1.75     $8.25 $0.85 $-3,500 -26.9% $-16,500
    INTC Short Call 2024 19-JAN 60.00 CALL [INTC @ $43.86 $-2.98] -40 1/27/2022 (630) $-19,000 $4.75 $-1.75     $3.00 $-0.86 $7,000 36.8% $-12,000

    So the difference between breaking fairly even and being down $5,000 per 20 was how aggressive we were on the short calls.  Of course, that pays off later when we roll the 2024 $40s out to a 2025 $35/50 spread and leave the short calls to rot.   Hopefully, $44 holds and forms a reliable base.

    VZ/Harip – Very different than CMCSA as CMCSA owns NBC/Universal and some sports teams.  Almost more like DIS than VZ.   I think T and VZ have the same problem that 5G cost a fortune and is not doing anything for them so far so people are bailing.  In VZ's case, $150Bn in debt is a lot of money but they do make about $22.5Bn a year and the market cap is $203Bn so 10x but more like 12x when rates drive up the interest payments.  Still attractive if you are REALLY a long-term investor and take a conservative position.  As with anything – we think there's a good chance the whole market will drop 20% so don't sell short puts unless you fully intend to DD if they drop 40%.  2024 $40s can be sold for $3.30 to net $36.70, which is about 20% off the current price – those are the ones I'd watch.  

    As to CMCSA.  We don't know what kind of disruption 5G will have to wireline service, if at all.  $40 is $189Bn for them and they make about $16Bn so 11.5x with $91Bn in debt so call them around 13x with higher rates.  Also tempting but with both of these guys, I'd rather see them form a base than guess the bottom.

    T at $19 is $140Bn and they make $19Bn – see the difference?  They do have $170Bn in debt but I think that's pre spin-off so more like $130Bn and that will still knock $2.5Bn off the bottom line but it only brings them down to about 13.5 AFTER accounting for higher rates – so a bit better-priced than the others.  

    DIS is expensive at $112 as that's $209Bn and they'll be lucky to make $8Bn this year and $10Bn next year so call it $9Bn and that's 22x earnings but "only" $40Bn in debt so I like but don't love them down here though we do have an aggressive long on them in the Butterfly Portfolio at the moment, which we will have to adjust.  

    Yikes, lots of selling to end the month – NOT GOOD!

    Oil came back to $105 from $107.99.  

  19. Thank God I have you guys to talk to.   I tried to give Monday's Morning Report to Seeking Alpha:

    Just Another Manic Monday – Big Tech Weak?

    And this was the reply from the editor (and it took them a day from submission to review it):

    "Please change the spelling of "Weak" to "Week"" – and I asked him why and he never responded.  I also got a note that the article had more than one trade featured and that tends to confuse the readers.  

    This is why my last article published there was Sept 2021 – I forgot what idiots they are…

  20. That's funny! (the seeking alpha response)


    Thank you for the INTC comments — I just got an email from TD saying I may be eligible for portfolio margin  — the way my account is currently I can't leave the other calls "to rot" because it takes up too much buying power.  It has restricted my ability to adjust some of these spreads – hopefully it will help.



  21. Dow down 666 – I wonder if that's a sign?  That's almost exactly 2%.

    Nas not far behind, down 471.  3.5% for the day. /ES down almost 3% as well and RUT down 2.5%.

    That's why we added $155,000 in downside protection yesterday – have to take advantage of the fake rallies.

    PM is great, Jeff, but very dangerous.  It's like playing with a light sabre – it's all fun and games until it goes the wrong way and cuts something off….

    Luke Hand Star Wars GIFs - Get the best GIF on GIPHY

    Dog Cat GIF - Dog Cat Fighting GIFs

  22. Thank goodness we did this in the Butterfly:

    • 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!!! 

    You have to remember it's our JOB to sell short calls – you need to feel bad if you can't find calls to sell.  We already had 40 short June $180s against 160 long spreads but, with AAPL testing $175, the amount of money they were offering for just over 30 days was ridiculous to pass up – so we sold 40 of those too.  We got $21,400 for the short June calls so now we have (assuming AAPL doesn't pop back) $47,800 to pay for rolling our 160 2024 $130 calls (now $46.50) to the $120s (now $53) for $5 or less, which would cost $80,000 to widen the spread by $160,000. 

    That's how we end up with these huge spreads – they pay for themselves…

    Down 729/490 on Nas – does not look like Mr. Stick will be visiting.

    YARN | How dare you! Come on, Mr. Twig. | South Park (1997) - S02E14 Comedy  | Video clips by quotes | 0569a8c1 | ?

  23. This market feels like financial waterboarding……

  24. Waterboarding/Tully – This might just be the beginning.

    Waterboarding At Coney Island: The Thrill That Chills : NPR

  25. Very ugly finish.

    Have a great weekend, folks!

    - Phil

  26. I thought of that because Devo is playing Pier 17 in NYC.  If you have a chance to see someone there – I highly recommend the experience.  

  27. This is where you are:

    Pier 17 Concert Series 2021 | The Seaport

    It's time to start living again!  

    Speaking of which, first time on a plane for me in over 2 years as I fly to Vegas for the Benzinga Conference.  I'm speaking on the 14th.

  28. You would have to post that picture! I really miss NYC! Sons place was right over that bridge in Brooklyn Heights…sigh.

  29. Sigh indeed.  Hopefully I'll make it there over the summer.  I still haven't seen my kids' colleges.

  30. Nor have I had a proper soup dumpling or a good piece of pizza for the last two years!  

  31. It's been a rough year for stocks. Investors are grappling with a host of headaches, including surging inflation, Russia's war in Ukraine, central bank tightening and fears of a recession. And depending who you’re listening to, things could get even dicier.

    • First the data. U.S. employment costs rose by the most in comparable data since the early 2000s, and the PCE deflator—the Federal Reserve's favored price gauge—accelerated to 6.6% in March from 6.3%, a smidge below consensus.
    • Personal spending growth roared in at 1.1%, even though personal income growth slowed. That means Americans aren’t afraid to dig into savings to keep spending.
    • Taken together, the numbers reaffirm expectations that the Fed will raise interest rates by a half-point at their meeting next week. Traders are already pricing in a near-equal chance that U.S. central bankers in June will raise their benchmark rate by 75 basis points, a move not seen since the aggressive tightening cycle of 1994.
    • All of this weighed on the S&P 500. The benchmark index fell 3.6% on Friday, its worst single-day drop since 2020 and its fourth-straight week in the red. The index is now down 13% for the year, a decline which, adjusted for inflation, is set to be the worst annual return since 1974.
    • And while a relief rally is still possible, a drop below 4,000 on the S&P 500 will be a ''tipping point,'' potentially triggering a mass exodus from equities, according to Bank of America strategists. 
    • Germany has only bad options and worse options. Olaf Scholz will have to stop payments for natural gas in May and face the consequences.
    • In Businessweek, read how China's campaign to wipe out Covid is crushing its economy. Doubts are growing over official data, but it's easier than ever to fact check. We also look at why China's refusal to deploy an mRNA vaccine was its biggest pandemic failure, and how the frustration with lockdowns is playing out on social media.

  32. ugly

  33. prepare for a black monday?

  34. Trump grand jury ending in N.Y. with no charges against ex-president

  35. Biden’s $1.75 Trillion Student Debt Problem by the Numbers

  36. Bored Ape metaverse frenzy raises millions, crashes Ethereum