Inflationary Thursday

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Jerome Powell Hamlet by DallETo hike or not to hike?  

There is no question that the Fed will be hiking rates again on December 14th – only by how much remains to be answered.  Rates are officially now at 4% but 3-Year Notes just sold for 4.5% and, as we discussed in yesterday’s Webinar – that’s going to blow up the budget in the years ahead.  

Not all at once though – it’s a slow, steady death march to 4.5% and higher as $100Bn of our $32Tn in debt rolled over at 4.5% on Tuesday but that’s not the only auction and we are rolling over $1Tn a month in debt at higher rates – so it will take us about 3 years before we are totally F’d.  

Until then, each month our total debt service gets 0.00833% higher than it was the month before but, in the end, it will be death by 36 cuts, as adding 3% to our $32Tn debt means we need another $1Tn a year just to pay the interest on our debt (which will be more like $36Tn by then anyway).  

We are currently running a $1Tn deficit and we aren’t doing much to address Climate Change or rebuild our Infrastructure.  Not doing anything doesn’t help as the cost of Weather Disasters due to climate change was $152.6Bn last year and each year is projected to get worse and worse as time goes on.

Map presenting billion-dollar events. See Events page for more information.

We were actually very lucky this year as there were fewer hurricanes than normal and almost all of them missed us.  Fires and Drought have been the main issues in 2022.  Not only do these events cause direct economic damage but they contribute to overall shortages that drive up consumer prices.  

Even energy costs are affected when a drought, for example, shuts down a hydroelectric dam – that raises energy costs for the whole country.  Imagine if that happened at Niagra Falls?  Remember the East Coast blackouts of 2003 and 1965 – that’s what happens when we lose power at Niagra Falls – what if that becomes a permanent problem?  We simply do not have a backup source of power…

Speaking of Inflation, CPI just came out and it was surprisingly low at 0.4% vs 0.6% expected and more than that expected by me.  That is sending stocks flying through the roof pre-market and even Core CPI is down 0.3% – that should calm the Fed down a bit.

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Let’s not get too excited as 0.4% is still up 7.7% from last year but the pace is slowing somewhat.  As you can see, Used Cars (something I had not considered) came down considerably, as did Medical Care, Clothing and Electricity as Fall Weather was nice enough that no one wanted to change it.  

The actual list of changes to certain items since last year is not pretty – Fuel Oil: +68.5% Gas Utilities: +20.0% Gasoline: +17.5% Transportation: +15.2% Electricity: +14.1% Food at home: +12.4% Food away from home: 8.6% New Cars: +8.4%.

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The market took off like a rocket but mostly because the Dollar fell off a cliff and I’m not sure how long either one will last but let’s enjoy it while we can:  

Dollar Nov 10 2022

SPX Nov 10 2022

Should be an interesting day. 

 

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Good Morning.

Good Morning. Big thanks on JXN Phil. They are one company who benefits from higher interest rates and it was worth the wait as earnings were fantastic and divvy raised. Plus options premium are stellar

Great Call- Like you said, you are very good at your job…. How is Nicole treating you by the way?

The hurricane? uneventful? Nicole right? I guess you guys get so many, the names mean nothing…:)

Did JXN raise divvy? I see the same 55 cents a share?

Hi Phil
I have a left over position:
sqqq gen 23 35 bouth at 7.50
sqqq gen 23 65 sold at 10.00

should i buy back the 65 for 4 ? To move more bearish? Or close the position?
Thanks

thanks for the long explanation and the joke.
Appreciated as always

Phil – MDT has fallen quite a bit earlier this week because because of a failed Symplicity Spyral Renal Denervation (RDN) trial. Would now be a time to enter a new position? Or wait to see how the markets settle and then buy? Have a bit of cash.

Seems like a great day to close the portfolios. And no, I am not being sarcastic.

Phil / Markets – Where do you see this top out going into end of year?

lets take some money off the table

Hi Phil,

Do you think financials have a leg down (looking at JPM/GS)? Looks like they did not “participate” in the crash with QQQ

Thanks

Can you recommend some financials to have short positions?

Thanks

Hi Phil, do you also factor in the $VIX for when to grab more hedges? It is working its way back toward 20 and I am thinking that may be the time to turn bearish again. How do you weigh grabbing Puts on a long indexed ETF versus grabbing Calls in a short indexed ETF?

Hi Phil,
I was assigned 100 shares of YETI from a short $50 put in Sep, the short call strike is lower than the long call, which is almost worthless. Any recommendation for this position?
YETI 100
YETI Jan 19 2024 60.0 Call 2
YETI Jan 20 2023 35.0 Call -3

Should I just roll the options to match the position in the LTP keeping or selling the 100 YETI?
YETI Jan 19 2024 50.0 Put
YETI Jan 19 2024 35.0 Call
YETI Jan 17 2025 50.0 Call

Thanks again,
Bruce

Thanks Phil. I’m saddened by how many mistakes I make with strike prices  😵  Guess I need to pay more attention and double check my orders

Phil / QCOM = 118, AVGO = 500

Phil / Rally – today ( Thursday) looked like the blow off could have been shorts covering — What do you think?