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Saturday, September 24, 2022


Which Way Wednesday – CPI Edition


That was our last CPI reading and we're having a bit of a pre-market rally (the same one that failed yesterday) on rumors that CPI is calming down which leads to rumors that the Fed will suddenly decide they don't need to tighten anymore.  I don't think any single reading will change the Fed but will CPI be calmer today?

Commodities have been driving the CPI so it makes sense to me to look at commodities and see if they calmed down between March and April.  

  • Oil was crazier in March, hitting $120 early in the month.  April stayed below $110 and averaged about $105.  Gasoline, on the other hand, was just as bad and Natural Gas got much worse as March topped out at $5.75 and $6.50 was pretty much the low in April.  
  • Cotton was higher, OJ was higher, Coffee flat, Lumber lower, Sugar higher (soft commodities)
  • Metals were lower across the board, most importantly Copper, which was about $4.65 in March and $4.60 in April but finished at $4.40 and is now $4.20 so it depends if CPI goes for the average or the finish how strongly that will reflect a calming.
  • Live Cattle (ready to eat or milk) also pulled back on the last days but Feeder Cattle (young cows) blasted higher in April.  Hogs also went insane.  There's no chart for Chickens…
  • Corn was up, Soybean Oil up, Soybean Meal down 15%, Soybeans down a bit, Oats about even but a weak finish, Rice up, Wheat Flat and Canola up,

So the commodites do not indicate an overall improvement in CPI but we might be saved by the Dollar, which flexed up from 99 in March to 101 in April and finished the month at almost 104 (still there).  That 2% boost in buying power can be used to justify a lot of CPI adjustments so they can tell us how inflation is getting under control and that is kind of how it's supposed to work – the Fed raises rates, strenghening the Dollar which then weakens commodities and puts inflation in check.  We'll see how well that worked out shortly but we're certainly not out of the woods yet because other Central Banks may decide to tighen and then the Dollar goes back down and we lose all the gains.  All we have at the moment is a first-mover advantage…

8:30 Update:  8.3%!  Still high but less than last month but certainly not low enough to support a major rally.  Generally rumors were for a real improvment, 0.2% is within the margin of error and Core CPI (ex Food and Energy) came in hotter than expected at 6.2% (same as last month) vs 6% estimated.  Keep in mind though, that this was all off the Fed raising rates just 0.25% at the March 16th meeting – their next meeting was last Wednesday (May 4th), so that had no effect on CPI at all yet.   This is more a mis-match of expectations and reality than anything else. 

Understanding the dynamics of what makes up these reports helps us stay ahead of the data, which is why we didn't buy into yesterday's rally or this morning's pre-market boost (all gone at 8:37 already).  Nonetheless, looking ahead we do see May improving a bit and some stocks are getting downright cheap so we will be looking to do a bit of bargain-hunting – as well as adjusting some of our existing positions to get ready for a real bounce.

Here's a few stocks I have my eye on for new entries:

"Some are quick

To take the bait

And catch the perfect prize

That waits among the shelves" – Same song

  • AKAM – A cloud company with a focus on cyber-security but now, at $97, they are down to $15.6Bn and they should have their first $1Bn profit this year or next – up from $615M last year and Akamai is the kind of company that builds a base of happy customers, who tend to be sticky as long as their networks keep running.  If you've ever tried to call AMZN customer service for cloud issues – you'd understand how valuable AKAM is to smaller businesses.  

  • AVGO – Any time we are offered Broadcom cheap, we take it.  $581 is not much of a pullback but it's only 15.6x earnings for one of my favorite companies.  You can see how well they've been holding up but we'll take the 17% off the highs and this is the kind of trade we'd start by selling a short put, to take advantage of the opportunity, like the 2024 $400 puts at $32, which would net us in for $368 – 36% below the current price.  Since we would be THILLED to own AVGO at $400, we would consider the $32 we get paid to make that promise FREE MONEY and we can spend it to buy a bullish spread once we feel confident the entire market isn't tanking. 


  • CROX – Baird just cut their price target on CROX by 40%, which would tragic but that price is now $120 and CROX is trading at $54.20, which is $3.3Bn and, even in 2020 they made $313M with $700M being more reasonable against their $3.75Bn in annual sales.   $2.7Bn in debt is typical for a manufacturer and we assume a 2% bump in interest payments ($54M) will cut into profits but certainly nothing that justifies it being this low.  Are the people who are buying $4Bn worth of Crox going to stop buying them?  If not, why sell the stock off like this over some short-term supply issues or inlfationary margin adjustments?  

  • DIS – $107 is below the magic $200Bn mark ($196Bn) and DIS may have lost $2.8Bn in 2020 but last year they made $2Bn and this year back to their usual $8Bn with $10Bn expected next year and that's still not back to 2018s $12.5Bn in profits, which was before Disney+.  It's the $40Bn debt bomb that's keeping people from buying them hand over fist but that's because DIS is a major property developer and not just a TV and Movie Studio, Theme Park Operator and Retail Branding giant.  The parks are packed at record-high prices and I'm expecting an earnings beat.

  • EXPE – Travel is back.  I'm in Vegas and the hotels are full and the airlines are offering people money to take another flight, etc.  Are you planning a vacation this year?  Do you know anyone who isn't?  $132 is the just under $21Bn and the nice thing about losing $2.7Bn in 2020 is that they won't have to pay taxes for the next few years.  Last year was flat and this year I think their $1.2Bn estimate is too low.  The issue here is they reported on Feb 10th but what they reported was Q4 earnings, which were disappointing with Covid resurging in December biut they still made $1.06 per what was a $192 share at the time.  Now it's just silly – even if they do make only $4 for the year but more likely they make $12.

  • ISRG – When we were watching Terminator in the 80s we weren't thinking our first real encounter with robots would be as our surgeons.  ISRG was one of our first big picks at PSW, back in 2006 and my how they've grown.  This is the first time all decade they've had a pullback like this so we're NOT going to miss out!  $212 is $76Bn and ISRG made $1Bn in 2020 and now back to $2Bn so still 38x earnings but this is the future of medicine and we're very lucky to get in at this price.  The robots aren't autonomous (yet) but a single surgeon can operate in 4 or 5 countries on the same day and, as the robots get cheaper – more and more hospitals will want them on call.

  • NKE – Notice how I love cheap blue chips?  Why chase crap when the classics are on sale?  Like Crox, are people going to stop wearing Nike?  $110 is $172Bn and NKE has $50Bn in sales and drops $6Bn to the bottom line so almost 30x still so we'll probably sell puts that get us in closer to 20x but it was $40Bn with $4Bn in profit in 2019 so 25% top-line and 50% bottom-line growth over 3 rough years would put us on track for easily $60Bn and $8Bn (conservatively) in 2025 and suddenly we're at 20x or lower.  

  • SEAS – Now considered the bargain park in Orlando.  $56 is $4Bn and they are making about $350M so stupidly cheap at the moment.

  • TM – Don't make me do math as it's 5am in Vegas but TM at $160 is $230Bn and they makle close to $3Tn Yen which, I believe, is still a lot of Dollars – somewhere around $30Bn of them.  All sorts of issues with supply and looming recession and such but, long-term, people need to get from one place to another and even if we all move to the cities and stop driving – we still need Toyota trucks to move our stuff.   TSLA sold 1M cars in 2021 and made $5.5Bn and has a $900Bn valuation.  TM sold 11M cars last year, made 5 times more money and is valued at 1/4 of TSLA.  TM only sold 200,000 electric cars but they expect to be all electric in 2035 – can TSLA ramp up to 10x production by then to simpy tie with TM?

  • TTWO – MSFT bought ATVI but TTWO is being ignored at $106, which is $12Bn against $600M in earnings in 2021, which were up 50% from 2020.  Post-pandemic, the project flat but flat is 20x earnings and they are well-positioned for growth the moment they say "Metaverse."  As I had predicted last year, ATVI got bought for their developers and TTWO has the same commodity but ATVI is now trading at 30x earnings so TTWO is a bargain with less people left to acquire.

  • WYNN – China is locked down and Vegas is coming back and WYNN expects to lose $200M this year and only plans to make $330M next year so $7Bn is a bit expensive against that but it's the same company that made $747M against $6Bn in revenues in 2017 so, long-term, I like these guys back at their March 2020 lows at $50 so selling a put on them is a no-brainer but I think I like them more than that.

That's 11 new stocks we can play with while we wait to see if the markets can put a bounce together.  



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8.3 cpi

Phil / COIN

Phil, any thoughts on when ABNB will be cheap enough to get into?

Good Morning.

Coin – Im out – I'll take a small loss on  this…. Thank goodness I was I had some short callers going into earnings ( covering my long puts)…. I'll look elsewhere. – I like AKAM at these levels – think this is a 130 – to 150 / sh co.  Also think why sort of kitchen sinked it this quarter…

YETI beat again. Should we adjust the LTP position (2X 60-80 BCS, 1X 70 Put)? Rolling the 60s down to 40s is <$8. 

Phil, I DEFINITELY did not think it is cheap yet.  But thank you for explaining to me why it is not a category killer; i did not realize BKNG and other sites had already put on so much competitive pressure.  Thanks.

gunder, how could you not know about VRBO which is owned by EXPE, also a competitor to ABNB

Phil / SQQQ / TZA

How does the SQQQ / TZA STP positions look like after making the adjustments today?

Oh. I missed the roll to the 50s. 

Then for now, I think I am going to roll down to the 40s, but without adding to the long side (i.e. still stay fully covered). 

phil / COIN

What do you plan to do with COIN 200 short puts?

I sold Jan 24 COIN 150 puts for $35.66. now at $99.1.

What do you think? Wait or Exit?


Phil – JXN – Was on your buy list a few weeks back.  They took a dive today, Still Like them?  Thinking of starting a nice divvy position.

JXN – the dividend of 0.55 is quarterly (there was some confusion last time if it was quarterly or half-yearly)

Big thanks Phil!  My thoughts exactly, nice to have confirmation.

Phil / LABU – Do you think this ETF is at risk of being shut down ?

LABU/BATMAN: I periodically check the direxion website for reverse split info, news, etc.. I will keep this chat abreast if I see anything. They would have a press release about it, and you would have sufficient amount of time to react. The trick is to know before the masses do…..

LABU is an ETF, usually they reverse split like Phil said vs shutting down & liquidating like the leveraged ETNs sometimes do

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