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Busy Week Begins – PMI, ISM, FOMC, NFP and Earnings

It’s a gambling parlor.”

That's what Warren Buffett said about the markets at this weekend's annual convention for his company.  That did not stop Buffett from making $40Bn worth of bets this quarter – using about 1/4 of Berkshire's cash pile – mainly to by Occidental Petroleum (OXY) and Chevron (CVX).  As we did, Buffett took advantage of the extreme volatililty to pick up some undervalued equities but he and I disagreed on CVX, as we took a short position – albeit after his long posltion caused the stock to make what we felt were undeserved new highs.  We took the following position in our Short-Term Portfolio (STP):  

CVX Long Put 2023 20-JAN 200.00 PUT [CVX @ $156.67 $-5.12] 15 3/25/2022 (263) $60,375 $40.25 $9.40 $40.25     $49.65 - $14,100 23.4% $74,475
CVX Short Put 2023 20-JAN 170.00 PUT [CVX @ $156.67 $-5.12] -15 3/28/2022 (263) $-33,300 $22.20 $3.85     $26.05 - $-5,775 -17.3% $-39,075
CVX Short Call 2022 17-JUN 170.00 CALL [CVX @ $156.67 $-5.12] -5 4/13/2022 (46) $-4,250 $8.50 $-5.61     $2.90 $-1.61 $2,803 65.9% $-1,448

“We depend on mispriced businesses through a mechanism where we’re not responsible for the mispricing,” Mr. Buffett said.

Buffett felt CVX was undervalued at $140 and we felt it was overvalued at $170 and, so far, both of us are right though we're up $11,127 (48.7%) from our $22,825 outlay in just over a month while Buffett is up maybe 10% but, of course, he's up Billions as he has more money to play with…

Still, that's why they have penny slots in the casino – not everyone can play in the high-roller room with Musk and Buffett, who buy companies as often, and as easily, as we buy new shoes.  To some extent, Buffett's confidence in ATI, ATVI, HPQ (we bought that one first), OXY and CVX is one of the things giving me confidence to hold our longs at the moment but, on the other hand, Munger was buying BABA and we stayed in – to our regret so far.  

Chess and Famous Business Personalities | CHESS KLUBAre we still playing with Warren Buffett at the top of his gain or is this like when your Grandfather tells you something with absolute certainty that only makes you realize he's losing it after you follow his advice and he turns out to be totally wrong? 

My father, David, was a brilliant man and a World class chess player and, when I was young, he would spot me a queen and two rooks and still kick my ass.  Probably one of the saddest days of my life was the first time I beat him at chess.  I was about 37 and he was 62 and I knew I wasn't that much better – he was slipping.  It's very subtle but people who play chess know what I mean – you get an intimate view of your opponent's mind when you play.  

I feel the same way about Buffett's trading decisions.  I've been watching him closely for 40 years, studying his moves, analyzing his choices and I have very rarely had occasion to disagree with him but I was very vocal a few years ago, when he violated his own rule about owning airlines and, since then unfortunately, I've had more and more occasion to disagree with his choices.  It doesn't make me happy to be right – it makes me sad.  

ATVI, for example, Buffett bought on the news that MSFT was buying them but he bought around $85, which he justifies by saying MSFT's offer is $95 but, as noted above, we can make 10% a lot faster than that and we expected regulatory issues to hold up the deal for quite a while and, of course, ATVI has a toxic culture that can't easily be cured.  MSFT clearly wants the software talent at ATVI and will PROBABLY close the deal eventually but I did not agree with tying up $85 on "probably".

Buffett also reduced his positions on V and MA, which is not something I would do with inflation boosting consumer spending – in addition to forcing them to put more things on charge accounts as consumers have to borrow to make ends meet.  Will it end in disaster with defaults and charge-offs?  Most likely, but not yet.  

Buffett did keep AXP and I assume that's because it's not really a charge card in that people pay it off at the end of the month so they don't generally accumulate debt they will defualt on.  Also, AXP serves a richer client base and has a much lower P/E (17) than V and MA (around 30) – so I agree on that one, but I'd wait for a pullback to jump in.  

 

We'll all see what's good to keep and what's not this month as we move into the manic phase of earnings but this week it's all about the Fed and their Wednesday Rate Decision, which seems fixed at 0.5 – 0.75% – almost certainly 0.5% after last week's tragic GDP number (-1.4%).  So, to some extent I think the market has over-reacted to recent Fed commentary but we're hitting some tragic levels on our bounce chart – so let's see if we get out of the woods before we aim for the stars:

  • Dow 36,000 to 28,800 would be a 7,200-point drop with 1,440 bounces to 30,240 (weak) and 31,680 (strong).   
  • S&P 4,800 is 20% above 4,000 and that makes it an 800-point drop with 160-point bounces so 4,160 (weak) and 4,320 (strong).
  • Nasdaq is using 13,500 as the base.  14,100 is the weak bounce and 14,700 is strong.  
  • Russell 1,600, would be about an 800-point drop with 160-point bounces to 1,760 (weak) and 1,920 (strong)

Since last Wednesday, we added a red box to the S&P 500 but that's the only thing that's changed so there's nothing to get excited, or worried, about – unless we can't take 4,160 back.  The Dow is our lagging index so they are the best one to short at the 33,000 line (/YM), with tight stops above.  A drop in the Dow to 31,680 at $5 per point would net $6,600 per contract and stoping out at 33,020 would cost $100 – a pretty good reward/risk ratio – don't you think?

About 20% of the S&P 500 will report this week, along with a Fed Dow components but it's all about the Fed:

Image

 


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  1. Good morning!  

    Quick 300-point drop on /YM good for $1,500 so lock in $1,000, of course and then you get to make 10 mistakes going forward.  

    Otherwise, Mondays are still Mondays so can't believe anything we see today – we're just lucky not to be down 500 on the Dow after Friday's disaster.  Actually, it's  a year-to-date disaster.   

    The S&P 500 lost 9.1 percent of its value in April, closing out its worst month since the COVID-19 pandemic began in March 2020 and marking its worst year-to-date performance since World War II.

    "The economy is fundamentally soft: The Fed is going to hike next week, the situation in Ukraine is not getting better and high inflation is cutting into costs," Joe La Vorgna, who served as a White House economic adviser under former President Donald Trump, told the Post.

    Yes, but we're not at war with Germany and Japan, are we?  People need to calm down.  As I keep saying rising rates simply knock a bit off forward earnings as corporate money is moved from profits to interest payments but they'll just charge more to cover it and then the workers will demand raises to pay off their credit card interest and companies will then raise prices to cover that and so on and so on until the economy crashes so it either happens now or later and the Fed is trying to get to that sweet spot where it happens now, but not so hard.  

    Why people are freaking out over sound fiscal policy (for a change) is beyond me – other than that nagging fear that no one will step up and buy our bonds as the Fed withdraws, causing notes to leap up in rates which will crash the housing market and put the whole thing out of the Fed's control.  That could be bad.  

    BUT there's no evidence yet of that happening so keep calm and carry on for the moment.  

    STP is at $706,038, which is good:

    Security Value:  $494,418
    Cash on Hand:  $211,621
    Total Value:  $706,038
    Portfolio Ret.:  253.0%

    LTP is down to $1,870,683, which is bad:

    Security Value:  $100,195
    Cash on Hand:  $1,770,488
    Total Value:  $1,870,683
    Portfolio Ret.:  274.1%

    So combined $2.6M from a high of $3m means we're losing a bit more than we hoped but a very high VIX (35) means that a good portion of our losses are premium that we expect to evaporate down the road.  

    Remember, the hedges are there to MITIGATE the losses, not ANNIHILATE them.  If the market drops 20% and we have 90% of our money intact, then we get to buy 10% more stock with the money we have left than we could have afforded before the drop.  That gives us huge upside on the rebounds – we just have to make sure there is a rebound.  

    Spirit/Rn – I'm flying Spirit to Vegas on Friday – I'll let you know how it goes.  Not at all looking forward to the flight but slim pickings out of Fort Lauderdale.  Got to get myself a proper mask too.

    Oil (/CL) testing $100 – that should be bouncy but Biden releasing 1Mb/d from the SPR could give us some massive builds in the weeks ahead (won't be reflected on this report).  

        

     

     



  2. Best Buy: Easy Money [DVD] [1983]End of Easy Money Brings a $410 Billion Global Financial Shock

    Powell’s Fed Set to Go Big and Keep Going Until Inflation Tamed

    Fed Prepares Double-Barreled Tightening With Bond Runoff

    Americans Feel Inflation Fatigue, and Some Companies See a Breaking Point

    Surging prices force consumers to ask: Can I live without it?

    China’s Lockdowns Wreak Havoc on Economy as Xi Pledges Support

    China’s Economy Flirts With a Recession, Threatening to Drag Down Global Growth

    China Contagion Threatens to Derail the World’s Emerging Markets

    Tourists, Rejoice! Italy, Greece Relax COVID-19 Restrictions

    Can the World Feed Itself? Historic Fertilizer Crunch Threatens Food Security

    Saudi Economy Grows at Fastest Pace in a Decade on Oil Boom

    May 02, 2022 10:03 AM ET2 Comments

    • March Construction Spending+0.1% M/M to $1,730.5B vs. +0.8% consensus and +0.5% prior.
    • Construction spending: +11.7% Y/Y vs. +11.2% prior.
    • During the first quarter of 2022, construction spending amounted to $376.6B, up 12% from the same period in 2021. Note that the monthly figure is a seasonally adjusted annual rate.
    • Private construction spending +0.2% to $1,379.7B above the revised February estimate of $1,376.9B.
    • Public construction spending of $350.8B +0.2% vs. the revised February estimate of $351.7B.
    • In other U.S. economic news, April PMI Manufacturing marginally lower from prior month

    May 02, 2022 10:02 AM ET1 Comment

    • April ISM Manufacturing55.4 vs. 57.6 expected and 57.1 in March. This is the lowest print since July 2020.
    • New orders: 53.5 vs. 53.8
    • Employment: 50.9 vs. 56.3
    • Prices: 84.6 vs. 87.1
    • Inventories: 51.6 vs. 55.5
    • Production: 53.6 vs. 54.5
    • Supplier Deliveries: 67.2 vs. 65.4
    • "The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment," said Timothy R. Fiore, chair of the Institute of Supply Management. "In April, progress slowed in solving labor shortage problems at all tiers of the supply chain."
    • Overall, supply chain and pricing issues continue to be panelists' biggest concerns, Fiore added.
    • Earlier, PMI Manufacturing slipped M/M in April.

    May 02, 2022 9:46 AM ET1 Comment

    • April PMI Manufacturing Index59.2 vs 59.7 (flash estimate) in prior month and 58.8 in March.
    • Quicker expansion in output, a softer deterioration in vendor performance and a series-record rise in pre-production inventories led to the growth.
    • Firms continued to hire additional staff to ease pressure on capacity, as backlogs of work rose at the slowest pace since February 2021.
    • New orders increased at a marked pace at the start of Q2 and at a rate broadly in line with that seen in March.
    • New export orders grew at the fastest rate for almost a year.
    • "Both input cost and selling price inflation surged higher, the latter accelerating to a near-record rate, as firms faced rising energy prices, ongoing supplier-driven price hikes amid strained supply chains, and rising wage costs," chief business economist Chris Williamson commented.

    Amazon (NASDAQ:AMZN) shed another 1.68% on Monday morning despite the Nasdaq being in positive territory.

    Shares of Amazon (AMZN) traded as low as $2,367.50 as the string of successive 52-week lows starting to pile up.

    Analysts are still picking at Amazon (AMZN) following the guidance update, which rattled the perpetual growth story thesis.

    Wedbush Securities removed the stock from its Best Ideas list due to what analyst Michael Pachter called "investment price discipline" with the operating income tallies from Seattle now attracting more attention than usual.

    D.A. Davidson was also pointing at a valuation reset. "With slowing e-commerce sales growth, the company needs new revenue sources to sustain its elevated revenue growth and premium valuation multiple, in our view beyond its AWS effort, which continues to impress," noted analyst Tom Forte.

    More than two million shares of Amazon (AMZN) swapped hands in the first 25 minutes of trading on Monday.


  3. Phil 

    /HG down a big along with other commodities. Do you thnkn 4.2 is a good floor?

    Thanks


  4. Phil-Good luck with Spirit! Flew them once and NEVER again!


  5. Five-Minute ‘Flash Crash’ in Nordic Equity Markets Jolts Europe


  6. Preferreds/Phil: Do you have an opinion as to why the current preferred Yield To Call are in the mid teens. It makes me skeptical. Inverted yield curve can't be good for regional banks… Am I overlooking a land mine?


  7. Spirit/Pirate/Phil: Same here Pirate, one and done on Spirit…. Long story which involved them leaving us in Cartagena stranded for 4 days…..


  8. Copper/RS – It seems to have good support on the weekly chart but, of course, $4 is better and even that is barely-tested support off a 100% run since stimulus began.  There hasn't really been a lot of actual infrastructure stimulus and we have the lockdown in China and the War slowing down EU construction projects – I'd be very careful.  Maybe keep an eye on FCX and RIO to see where they find support.

    Spirit/Pirate – I have flown them several times and never again each time but I can be uncomfortable for 6 hours for $1,200.

    YTC/Tully – I don't do a lot with preferred stocks but yes, that sounds high.  These formulas are based on standard models and I'm not sure this qualifies – it's in the teens for a reason.

    Oil popped back up to $104.50 – that was easy.

    PFE -1.77%May 02, 2022 11:52 AM ET

    Pfizer (NYSE:PFE) is scheduled to announce Q1 earnings results on Tuesday, May 3rd, before market open.

    The consensus EPS Estimate is $1.57 (+68.35% Y/Y) and the consensus Revenue Estimate is $24.73B (+69.62%).

    Over the last 2 years, PFE has beaten EPS estimates 88% of the time and has beaten revenue estimates 63% of the time.

    Over the last 3 months, EPS estimates have seen 3 upward revisions and 2 downward. Revenue estimates have seen 1 upward revision and 3 downward.

    Investor sentiment going into the Q1 result has 62% expecting an earnings beat. Short interest has decreased by 2.2% since Pfizer's Q4 results (Feb. 8) while the stock has drifted lower by 3.1% from its open following the earnings release to be 0.2% below its 200 day moving average of $49.17.

    On April 27, there was some notable buying of 10,302 contracts of the $43.50 put expiring on May 6. Option traders are pricing in a 6.3% move on earnings and the stock has averaged a 2.3% move in recent quarters.

    Pfizer's stock declined -2.84% on Feb. 8, after the company missed Q4 revenue expectations but beat non-GAAP EPS estimates. The COVID-19 vaccine maker also set FY22 revenue guidance ($98.0B to $102.0B) lower than the consensus ($105.90B).

    In April, while citing IQVIA prescription trends, Mizuho had noted that it expects Pfizer to report Q1 revenue in line with the consensus. However, the analyst projected lower than expected sales for Paxlovid, breast cancer therapy Ibrance and JAK inhibitor Xeljanz. The analyst, however, noted that the sales of COVID-19 vaccine Comirnaty could exceed Street forecasts driven by the demand outside the U.S.

    In Q4 earnings release, Pfizer had raised FY22 revenue outlook for COVID vaccine Comirnaty to ~$32B.

    Meanwhile in April, it was reported that the company expects COVID therapy Paxlovid to generate $22B in revenue this year.

    The antiviral pill, which received emergency use authorization in the U.S. in December 2021 to treat certain patients with COVID, is also expected to benefit from the Biden administration's decision to allow all pharmacies to order Paxlovid, a move aimed at increasing access to the drug as supply increases. The drug had also earned a preferred status to treat certain patients with COVID in an advisory by the CDC in April.

    The The World Health Organization (WHO) also recommended the use of Paxlovid for certain patients with COVID but had raised concerns on the drug's access and lack of price transparency, among other things.

    Paxlovid, however, recently failed to meet the main goal of preventing infection in a phase 2/3 trial.

    In April, Pfizer (PFE) and its German partner BioNTech (BNTXfiled for emergency use approval of a booster dose of their COVID-19 vaccine in children aged five through 11 years in the U.S. A third dose of the vaccine in this age group showed increased Omicron neutralizing titers, compared to two shots of the vaccine.

    Other Notable News:

    Pfizer (PFE) and Biohaven's Vydura was approved in the EU to prevent and treat migraine in certain patients.

    Pfizer (PFE) began a recall of certain lots of blood pressure drugs Accuretic (quinapril HCl/hydrochlorothiazide) and authorized generic versions over potential cancer-causing impurity.




  9. Nuclear Bonds


  10. We can assume the weakness continues as long as the VIX is in the 30s. 

    Should be the end of it today or tomorrow (see March)

    Unless, of course, the Fed gives us more to worry about.

    As to mandarins taking over – that's certainly true in Florida.  It's Sumo Mandarin season down here – they are the BEST!  

    Sumo Mandarins | Giant Eagle

    You just yank the top off and you can peel it with your hands.  

    They charge a fortune for them, like $5/pound but better than eating a pint of ice cream late at night.  Whole foods usually has them – people don't like them because they look ugly (ugly vegetables are a huge part of food waste) but they taste amazing.

    The Sumo oranges took upwards of 30 years to breed, and the trees are slow to mature, which is why this sweet citrus is often more expensive. In Japan, where it’s from, it’s often given as gifts.

    The only problem is they are seasonal so it's really annoying that you have to wait about 8 months to have them again when they run out. 

    Avocados got cheap again for some reason.

    Rice is a big problem when it gets expensive.  The alternative is Soybeans.

    Sorry kids….

    Hunger in Asia - Compassion International

    No Soup For You GIFs | Tenor

    Twenty million people are at risk of starvation this year as delayed rains worsen an already brutal drought in Kenya, Somalia and Ethiopia, the United Nations has warned.

    For months, extreme drought has left the Horn of Africa on the verge of a humanitarian catastrophe, destroying crops and livestock and forcing huge numbers of people to leave their homes in search of food and water.

    As long-awaited rains fail to materialise nearly a month into the current rainy season, “the number of hungry people due to drought could spiral from the currently estimated 14 million to 20 million through 2022”, the UN’s World Food Programme (WFP) said on Tuesday.

     

    The agency warned that a lack of funding could trigger a catastrophe, calling for $473m over the next six months.

    A previous appeal in February raised less than 4 percent of the cash needed, it said.

    Really tragic but good luck even getting it on the agenda these days.  


  11. Phil/OJ – the frozen concentrated orange juice market is always the hottest trade pit!


  12. 1st and 2nd time is a charm on the Dow.

    That's another reason to keep stops – you can always get back in again on the way down.  

    S&P getting dangerously close to 4,000, which is the 20% base.  Nas is below (13,500), RUT's 20% line is 1,920 – we just went 10% lower for the base as they were so weak.  This is not looking good, folks.

       

    Zoom out and you can see the Dow's extreme lagginess:

       

    Also in free fall:

       

    "Now all the vampires walkin' through the Valley

    Move west down Ventura boulevard

    And all the bad boys are standing in the shadows

    And the good girls are home with broken hearts"


  13. Tangerines/Phil – here in LA we have tons of clementines and satsumas. Trader Joe sells bags of them; we always keep them on hand – I like them for mid-morning and mid-afternoon. Jeju Island in Korea produces tangerines as their primary crop, but I don't know the variety, although with global warming people are planting small orchards in the southernmost parts of the peninsula.


  14. this is/was a straight up bonds crash. There's no other way to describe it.


  15. With T at $19, it's a good time to consider it as a new dividend play:

    • Buy 1,000 shares of T at $19 ($19,000) 
    • Sell 10 T 2024 $20 puts for $3.50 ($3,500)
    • Sell 10 T 2024 $20 calls for $1.90 ($1,900)

    That's net $13,600 ($13.60/share) and, if assigned 1,000 more shares at $20, that's $33,600 or $16.80/share – 11.5% below the current price.  Plus you get $0.278 dividend x 7 ($1,946), which is 14.3% of the cash position while you wait to see if you are called away with a 47% profit ($6,400).

    The trick with these trades is to be consistent.  If not assigned (or even if you are), you sell another $5 worth of puts and calls in 2024 and you basis goes down to ($13,600 – $5,000 – $2,224) = $6,376 and in 2026, you will have reduced your basis to about $0, with all the cash back in your pocket after 4 years. 

    You will still own 1,000 (at least) shares of T at net $0 and you'll still be getting your dividends.  

    Then you put the cash back to work and do it again for another 4 years and you have 2x worth of T at net $0 (2030)

    2034 you have 4x and 2038 – just 16 years from now, you have 8,000 shares of T for net $0 and let's say they are worth $160,000 (still $20) and the dividend is still 0.278 – that's still $2,224/qtr or $8,896/year and you can still sell calls and puts for income on top of that.  

    That's a very good return for your $13,600 investments, right?  

    Oranges/Snow – So nice that we have such tasty food sources.  But I guess all animals think that…

    Bonds/BDC – Yes we could see it coming from 5 years away.  I could not believe, at 0.25%, that people were still buying bonds.  What else could have happened?  

    TBT +3.34%May 02, 2022 2:04 PM ET18 Comments

    The 10-year U.S. Treasury yield briefly broke above 3% for the first time since December 2018 as the Federal Reserve is poised to hike interest rates and shrink its balance sheet to fight inflation.

    The closely watched yield rose almost 7 basis points to 3.002% in Monday afternoon trading. All three major U.S. stock indices fall are trading in the red. Nasdaq is dipping 0.4%, S&P 500 -0.7%, and Dow -0.6%. Since reaching 3.0% at about 1:15 PM ET, the 10-year Treasury yield has retreated to ~2.98% at 2:03 PM ET.

    Last week's bond market sell-off "has occurred as investors weighed the potential impact of higher inflation—partly on the increased pressure on the supply chain in the face of the war in Ukraine—and on U.S. and global growth in the process of economic re-openings now and in the months and quarters ahead," said Oppenheimer's John Stoltzfus.

    ProShares UltrShort 20+ Year Treasury ETF (NYSEARCA:TBT) is jumping 3.3%, iShares 20+ Treasury Bond ETF (TLT) is down 1.7%.

    The market is banking on the Fed raising its benchmark interest rate by 50 basis points, as the CME FedWatch Tool has a 99.8% probability on the Fed raising its key rate range to 0.75%-1.00% from its current 0.25%-0.50% level. Fed Chair Jerome Powell has all but said the central bank will raise rates by 50 basis points.

    BABA +1.78%May 02, 2022 2:11 PM ET

    Chinese tech giant Alibaba Group Holding (NYSE:BABA) has fallen around 17% in 2022 as concerns have swirled around Beijing's regulatory policy and strict COVID lockdowns in Shanghai. However, the stock jumped late last week, along with many of its peers, on signs that the crackdowns might be easing soon. Does a seeming shift in the attitudes of Chinese authorities signal it's time to buy BABA?

    Crackdowns

    The last two years have been tough on Alibaba (BABA). The stock, despite recently surging off its lows, is still down nearly 70% from its record $319.32 trading price, which it established back in Oct. of 2020.

    Much of this slide came about amid uncertainty about Chinese authorities’ agenda, as regulators launched intermittent crackdowns on large tech players that listed outside the country. While at times things seemed grim, the latest news showed potential signs of hope.

    On Thursday of last week, Chinese state-run news outlets reported that Beijing may end its regulatory crackdown on internet and tech firms in an effort to support the ailing economy.

    The South China Morning Post, reported that the government will have a symposium with the country's largest tech firms to tell them that they will stop the regulatory push. The symposium has reportedly been set for Labour Day holiday, which is scheduled to run until May 4.

    Weight of COVID-19

    Alibaba and other Chinese stocks have faced a wall of pressure as shutdowns in Shanghai have had rippling effects through the world’s second largest economy.

    Shanghai, with its 24.9M residents, is three times the size of New York City and is home to the world’s busiest port, which has logjammed the Yangtze River backing up traffic from Changzhou, Zhenjiang, Nanjing, to Wuhan.

    With the restrictions, goods are unable to flow freely, forcing products to sit on the docks. E-commerce giant BABA is one of the many Chinese stocks that is feeling these effects, which may in turn impact future sales and quarterly results.

    Moreover, the shutdowns in China also limits the ability of workers to partake in their regular work schedules, which adds additional pressure for the local economy to buy and sell products.

    Is BABA a Buy?

    While BABA’s price has come crashing down, analysts have largely remained bullish on the Chinese tech stock. The vast majority of Wall Street experts view BABA as a Buy or Strong Buy — 37 out of the 44 analysts surveyed by Seeking Alpha, to be exact.

    Only 6 shops label the stock as a Hold. Meanwhile, there are three analysts who rank the stock as a Sell or Strong Sell.

    The current average price target among analysts is $176.48. See the chart below for further details:

    While many may still be bullish on BABA, there are voices of skepticism.

    Jessica Tea, an investment specialist at BNP Paribas Asset Management Asia Ltd. in Hong Kong told Bloomberg: “After the sustained regulatory tightening, the COVID resurgence in recent months and the stringent zero COVID policy are likely to exacerbate a slowdown in revenue growth for a number of companies, particularly the internet ones.”

    Tea continued: “Slower sales are likely to impact future profits, translating into shrinking earnings expectations.” While BABA was not mentioned directly, these conditions remain headwinds for the company, even as the regulatory picture appears to brighten.

    For other insights, see why Bashar Issa, a Seeking Alpha contributor, highlights three reasons to sell Alibaba. At the same time, another contributor, Bluesea Research, sees the brighter side of BABA, arguing that the tech giant is building a digital media empire with quality content.

    USO +0.41%May 02, 2022 12:59 PM ET16 Comments

    • OPEC production for March rose 40kb/d, missing the group's production growth target of 254kb/d, according to month-end survey results (NYSEARCA:USO) (XLE).
    • The broader OPEC+ group targeted 400kb/d of production growth, though Russia state media indicated that Russian production fell slightly in March.
    • The miss was largely attributable to decreasing production in Libya (TTE) and Nigeria (XOM) (SHEL), according to the Reuters survey; although Libyan production has been volatile and challenges well flagged, serial declines in Nigerian have been a persistent headwind to meeting group-wide production targets.
    • With OPEC set to meet Thursday, analysts will be focused on official production results, as well as any shift in plans that could come as result of Russian oil production declines.


  16. Following the JBLU Spirit deal, JBLU now has offered a new deal - https://www.businesswire.com/news/home/20220502005423/en/JetBlue-Submits-Enhanced-Superior-Proposal-to-Acquire-Spirit. TLDR – same $ amount, but willingness to divest Spirit's NYC, BOS, and FLL assets (due to the anti-trust issues with JBLU's collab with AA), 200mm breakup fee. 

    Really desperate to get rid of Spirit…


  17. Here's the 20% drop on the S&P 500 per the 5% Rule:

    On the whole, it's very well-behaved.  Notice at the bottom, the MACD seems oversold.  That combined with we are testing 4,000 (which should be very bouncy) and the VIX around 35 means we are very primed for a bounce back up now.  

    The Fed is kind of a wild card but there are no major earnings likely to rock the markets.  PFE is a relatively low-weighted Dow component since it goes by price and PFE is only $47.80.  COP is the next biggie on Thursday but how can they have bad earnings?  They are not even in the Dow – CVX is.  No mega-tech to pull the S&P down either.  

    Image

    On the Calendar, nothing important tomorrow other than Fed rumors but it should be a bit bouncy and then PMI and ISM services and the Fed Wednesday but, if they don't disappoint, then good time to retest the strong bounce. 

    In the STP, let's roll 50 (1/2) of our short Jan $70 calls at $12.85 to 50 of the short June $50 calls at $8.  That will cost us $4.85 but they'll expire much faster.  We can always roll them back if we're wrong.

    Let's also cash the 100 TZA Jan $20 calls at $22.50 as that's a LOT of money ($225,000).  

    That's good for now, don't want to over-compensate ahead of the Fed. 


  18. FLL/Rn – That's the one I want JBLU to have!  If they aren't going to take over FLL – I don't give a crap about the deal….  angry


  19. And, back to bargain – hunting.  How about JPM, who are down to $119, which is "only" $350Bn and they made $48Bn last year but $35Bn is more "normal" for them.  Inflation should grow deposits and, of course, if we do have some sort of collapse they are too big to fail and they get to buy up their competition for 10 cents on the Dollar.  You can sell the 2024 $100 puts for $10.50 and if that's not free money – I don't know what is.

    For the LTP:  

    • Sell 10 JPM 2024 $100 puts for $10.50 ($10,500) 
    • Buy 25 JPM 2024 $120 calls for $18 ($45,000) 
    • Sell 25 JPM 2024 $140 calls for $10 ($25,000) 

    That's net $9,500 on the $50,000 spread with $40,500 (426%) upside potential at $140.  Since we're very happy to own JPM at $100, the spread is a small commitment and, if for some reason JPM drops 20% (our puts are still safe) then we'll be THRILLED to roll the long calls down $20 for $10 more ($25,000) and we'd be in the $100,000 spread for net $34,500 with $65,500 upside potential - we can certainly live with that!  

    When the worst case sounds better than the base case – it's a good trade!  


  20. Phil/TZA – with that trade, are you leaving any short call positions open if only closing out the money making long calls? I bought 30 Jan 23 $30 calls and sold 30 Jan 23 $45 calls. The longs clearly in the money. Would you close these and leave the naked $45s?


  21. Air travel

    More bifurcation of the classes. Somme do private, others discount. I was looking at flights to Boston and realized Sun Country charges $60 per bag, overhead or checked.

    Phil are you going to check out a poolside menu in Vegas ? Someone told me that Mac & Cheese is $75, protein is $15 extra at the Wynn.


  22. TZA/Swamp – Here's what we had:

    TZA Long Call 2023 20-JAN 20.00 CALL [TZA @ $41.83 $1.35] 100 2/1/2022 (263) $168,500 $16.85 $5.78 $7.89     $22.63 $2.73 $57,750 34.3% $226,250
    TZA Long Call 2024 19-JAN 40.00 CALL [TZA @ $41.83 $1.35] 100 3/10/2022 (627) $132,800 $13.28 $4.30     $17.58 $-0.43 $42,950 32.3% $175,750
    TZA Short Call 2024 19-JAN 60.00 CALL [TZA @ $41.83 $1.35] -100 3/10/2022 (627) $-114,000 $11.40 $3.10     $14.50 $2.25 $-31,000 -27.2% $-145,000
    TZA Short Call 2024 19-JAN 40.00 CALL [TZA @ $41.83 $1.35] -25 11/16/2021 (627) $-21,000 $8.40 $9.18 $-15.99     $17.58 $-0.43 $-22,938 -109.2% $-43,938
    TZA Short Call 2024 19-JAN 45.00 CALL [TZA @ $41.83 $1.35] -400 1/7/2022 (627) $-442,000 $11.05 $5.48     $16.53 - $-219,000 -49.5% $-661,000
    TZA Long Call 2024 19-JAN 25.00 CALL [TZA @ $41.83 $1.35] 200 3/23/2022 (627) $270,000 $13.50 $8.75     $22.25 - $175,000 64.8% $445,000
    TZA Long Call 2024 19-JAN 25.00 CALL [TZA @ $41.83 $1.35] 200 3/31/2022 (627) $268,400 $13.42 $8.83     $22.25 - $176,600 65.8% $445,000
    TZA Short Call 2022 15-JUL 40.00 CALL [TZA @ $41.83 $1.35] -50 3/31/2022 (74) $-15,000 $3.00 $5.43     $8.43 $1.17 $-27,125 -180.8% $-42,125

    So the 100 were long calls and we have 100 of the $40/60 spreads and 400 of the $25/45 spreads and 75 loose short calls to work out remaining.  

    We also have 200 SQQQ 2024 $30/60 spreads with now 50 short Jan $70s and 50 short June $50s and we have 50 DIA Jan $400/350 bear put spreads covering 25 may $350 puts (in trouble at the moment) and 25 short Sept $310 puts.

    Well, we got a bit of a stick into the close – we'll see if it sticks.

    Bags/Randers – That is an insane thing they do now on most airlines.  The bags are more than the flight sometimes.  As to Wynn – too snooty for my taste – the kind of people who stay there think a $75 mac and cheese tastes better than the 0.75 kind from a box.  Reminds me of the Art Hotel in Barcelona where my kids (around 11/12) wanted the $50 poolside burgers and I gave them each $50 and marched them down the street where we had a great lunch for $10 each and I let them keep the change.  Lessons were learned!  


  23. My bad, we added 100 TZA 20/40 spreads on Thursday morning – I didn't log those yet.  That leaves us still with 100 of the $20s but we already closed the long $40s and we're left with a 100 $20/60 spread.