Let the layoffs begin!
Tuesday we heard that Salesforce (CRM) was laying off 10% of it’s staff and now Amazon (AMZN) has announced they will be laying off 5% or their workforce, 80% more than was expected by our leading Economorons. So, if we assume Amazon know what they are doing and Econmorons do not – then we’re facing 80% worse conditions going forward than are currently being projected.
Tesla (TSLA) announced deliveries in China for December that were 20% below last year and 50% below November deliveries as the now unreported Covid surge is ransacking the country. Meanwhile, insanely, Walgreens (WBA) announced a 1.5% drop in sales due to far less people getting their Covid vaccines, priming the US up to suffer from the next wave.
The top-line results came as the company swung to a loss of $3.72 billion due to a $6.5 billion charge tied to a settlement to resolve opioid-crisis lawsuits brought by states, cities and other governments. However, adjusted for the settlement and other one-time items, Walgreens posted per-share earnings ahead of Wall Street expectations.
The stock is back to $35 this morning and it’s a good time to get in or adjust as this is a silly sell-off based on things we already knew about and have already taken the company down to where it is. Writing off the entire Opioid Settlement in one quarter puts it in the rear-view mirror and, next year, the company can make it’s typical $4Bn without the impairments – yet you can buy the whole thing for $32Bn at $35 per share.
We’re not too concerned as $35 was our target price for WBA from our September entry in the Long-Term Portfolio (LTP), where we sold 20 of the 2025 $30 puts for $5.20 ($10,400) and bought 40 of the 2025 $25 ($9.50)/35 ($4.80) bull call spreads for net $4.70 ($18,800), which is net $8,400 overall on the $40,000 spread. As long as $35 holds up in Jan 2025, we’ll make $31,600 (376%).
You don’t have to take big risks to make big money – remember that!
Should WBA fall back to $30, we don’t mind owning $2,000 shares at $30 and the 2025 $17.50 calls are currently $20 and our $25 calls are $13.50 so it would cost us $4 to roll down $7.50 and if that gets to $3.50 or less, we’ll take advantage of it in our LTP.
That would put us into a $70,000 ($17.50/35) spread for net $14,000 more or $22,400 total and our upside potential shifts from $31,600 to $47,600 (212%) but now, at $25, we’d have $30,000 back, so better than break even below where the original trade started (we would roll the short puts).
We often start out with trades that COULD make 300-500% if all goes perfectly so that, when it does not, we can fall back to trades that are much more likely to make 150-200%. Giving ourselves space to pull back and regroup in adverse markets is the key to a successful long-term strategy and that begins with having the discipline not to overcommit to our initial entries.
It’s still a tricky market and we are mostly just improving our existing positions, rather than adding new ones. This morning the market is heading lower as the ADP employment report came in at 235,000 vas 160,000 expected and more than double last month’s 127,000 – so the Fed is not slowing down job growth fast enough to stop raising rates.
Backing that up are Jobless Claims at just 204,000 this morning vs 230,000 this morning, despite AMZN pitching in with 18,000 cuts. We get Markit PMI at 9:45 and Natural Gas at 10:30, which will hopefully turn it back up from $3.85, and EIA Oil Inventories at 11.
Bostic speaks at 9:20, Bullard speaks at 1:20 and Bostic again tomorrow at 11:15 and 3:30 with Barkin at 12:15 but, clearly, whatever message Bostic is delivering is one the Fed wants to make sure you take into the weekend.
- Corporate Insiders Aren’t Betting on a Market Rebound
- Most businesses expect 2023 recession: JPMorgan survey
- Futures muted as Fed minutes confirm more tightening ahead
- Ex-Fed Chair Alan Greenspan sees a US recession as the ‘most likely outcome
- Sterling weakens after business activity data points to recession
- BOE Says Outlook for Inflation and Wages Worsens for Businesses
- Chinese Builder Defaults on Bonds Despite State Help for Sector
- Debt Payments Consume 80% of Nigeria’s Revenue Collection
- Saudi Arabia Cuts Oil Prices for Main Market as Demand Slows
- Canada posts C$41 mln Nov trade deficit on lower energy exports
- Bed Bath & Beyond warns it may go out of business, stock tanks
Good morning!
Yes I am adding back 2 /NG at $3.85 as that will bring the average down to $4.15 but, if we have problems passing back over $4, I’ll be quick to get out with any small profit on the 3rd and 4th contracts – like we did in yesterday’s Webinar. Any improvement is better than no improvement!
Phil on our discussion on T of yesterday, it looks better to me by selling the Jan 25 20 call @ 2.01 giving you a return, if called of 325.00 at 20, as your call sold at 3.15 will only bring 141.00 if called at 17.
On top you will have a better chance of collecting the 0.227/ quarter div. over a possible much longer period if not over the complete period.
I’m just looking to establish a low-cost position and not taking big risks in this environment. Options can always be rolled – I’d rather have the protection.
You have to realize that that play (and the numbers are right now) makes 30% in two years as long as T doesn’t fall more than 10%. This portfolio does not have money to lose at this point. We do the same thing in our larger portfolios – we start out conservative and take more risks with a portion of our profits – not the principle…
Thanks for the comment Phil. Yes it is in deed a small port. and you look for more downside protection. Like one bird in the hand!!!! Still I do have a more positive outlook for T. I hope 🙄
3,840 failing without a bounce – bad sign!
Nas couldn’t hold 11,000 either.
This is odd:
Now that the pre-holiday BS pump job is over:
See the bad news from UK above.
Getting interesting.
hi Phil – GM!
Is there a link to view the current portfolio? (Sorry, couldn’t find it)
Phil/AAPL – Could you suggest a new entry as I dont have any exposure to AAPL?
Phil/ BABA – Is this ripe for a new position if I dont have exposure?
Thanks
Good Morning.
hi Phil – GM!
Is there a link to view the current portfolio? (Sorry, couldn’t find it)
Phil/AAPL – Could you suggest a new entry as I dont have any exposure to AAPL?
Phil/ BABA – Is this ripe for a new position if I don’t have exposure?
Thanks
Portfolios are always reviewed on Option Expiration Weeks so just go to “Phil’s Posts” above and search back for that week. The last one was: PhilStockWorld December Portfolio Review
I would certainly wait for earnings on AAPL and BABA before jumping in.
We have BABA in the LTP and I’m happy with that position (as I said in the review) and AAPL we just have the short puts, which I spoke about yesterday, as we’re waiting to see where they bottom out before adding a bullish spread, which we also discussed yesterday.
Thx, will check the portfolio review.
Dollar spiking up to 105.25 makes me inclined to ride out the dip in /NG. The inventory draw was a tiny bit less than expected but not deserving of a 10% drop on the day.
US natural gas inventory fall lower than expected
UNG -9.22%
Jan. 05, 2023 10:32 AM ET
2 Comments
5 stocks to watch on Thursday: Amazon, Southwest Airlines, Walgreens and more
AMZN -2.16%
Jan. 05, 2023 8:46 AM ET
9 Comments
With the latest jobs data showing ongoing tightness in the labor market, the futures eliminated gains seen earlier in the morning, suggesting Wall Street would see a lower open to start Thursday’s trading. Here are some stocks to watch on Thursday:
As expected, a headline rise but a draw in /RB as people travel for holidays:
EIA inventory report – Crude inventory rises, SPR draw narrows from last week
UCO +0.66%
Now!
Not so bad really with the Dollar up 1%.
/NG hopefully stabilizing at $3.65.
phil, are you still holding 4 /ng futures?
Sadly, yes.
PHIL: This was a question from just before the close yesterday that was overlooked. EWZ is up a good deal, but the question stands.
Hi Phil, Any thoughts about EWZ, the Brazil ETF. It has been hammered lately on fears that Lula will damage the Brazilian economy with huge social spending programs. There are also worries that he will put cronies in charge of components of the ETF like PBR, and perhaps dip into its coffers to fund social spending. Plus, there is the worry that commodity prices may weaken if we go into a strong global recession. So lots to worry about.
On the other hand, the dividend yield is over 15%, and it has dropped from about 34 to 26 since November. I am wondering if selling puts on down days is a good strategy for an entry. Yesterday, EWZ was at 25.72. Are we at the point where the reward is starting to counterbalance the risks?
Thanks.
And here is my answer from yesterday’s post, which was not overlooked:
I think the same knee-jerk right-wing idiocy is panicking people out of EWZ as it does when any liberal takes control of a Government and plans to (gasp!) balance the books by taxing people who make the most money and (gasp!) spend money on programs that actually help the people who need it.
As with our own economy, it’s a completely factless fear when CLEARLY the economy performs much better when we invest in the people rather than tilting the game further to the advantage of the already rich and powerful.
Like Obama, Lula is being handed a disaster to start with and there’s a Global Recession so why do you expect a magical turnaround? I just don’t see it as the most compelling place to make a bullish bet – not when our Watch List has 100 great stocks that are extreme values.
As with everything else – I’d wait for Q1 earnings and see if things are actually improving before putting money at risk.
Let’s consider this:
A man owns a McDonald’s franchise and makes $1.5M per year in profits (20% of $7M in sales) and pays his employees $7.50 per hour.
The extra $876,000 the workers make is more than the increased price of sales at MCD – so they are not suffering at all and the workers will spend all their money at the bottom so it will multiply (change hands) and average of 3.1x ($2.7M) before going to the bank vs. less than 1x from the wealthy owner.
That benefits not only society with a stronger GDP but also many other people who make money on transactions that there would not otherwise have been money for – which strengthens all businesses – including the MCDs.
Not only that but now the “poor” workers make $40,000 per year at MCD and no longer need as much social assistance, which saves the Government money and allows them to pay down debt and further strengthen the economy – which reduces borrowing costs for people who want to buy MCD franchises, etc.
It’s not just greed that ruins our society – it’s stupid, pointless, counter-productive, misguided greed…
Can you post the link for the source of this bar graph?
That’s what happens when I post the link but just right-click on it and open source.
• Why Petulant Oligarchs Rule Our World. When an immensely rich man, accustomed not just to getting whatever he wants but also to being a much-admired icon, finds himself not just losing his aura but becoming a subject of widespread ridicule, of course he lashes out erratically, and in so doing makes his problems even worse. (New York Times)
Extremists at the vanguard of a siege: The Jan. 6 panel’s last word The voluminous final report from the Capitol attack committee dug deep into the unspoken alliance between Trump allies and far-right groups that showed up to riot.(Politico)
• 22 Things That Made the World a Better Place in 2022: From spinal implants that allow paralyzed people to walk to smashing an asteroid off course with a rocket, this wasn’t just a year of negative headlines. (Wired)
After $18 Trillion Rout, Global Stocks Face More Hurdles in 2023: Recession, rate hikes risk spurring earnings slowdown in 2023 Question marks remain over how Big Tech and China will fare. (Bloomberg)
• The 2023 outlook research report dump: Knock yourselves out (FT Alphaville) see also Big Banks Predict Recession, Fed Pivot in 2023: More than two-thirds of economists at 23 major financial institutions expect the U.S. to have a downturn this year (Wall Street Journal)
• Here’s (Almost) Everything Wall Street Expects in 2023: To kickstart the new year, Bloomberg News has gathered more than 500 calls from Wall Street’s army of strategists to paint the investing landscape ahead. And upbeat forecasts are hard to find, threatening fresh pain for investors who’ve just endured the great crash of 2022. (Bloomberg)
• Get Ready for the Richcession: Well-off Americans could get hurt more than usual in the next downturn (Wall Street Journal)
• Venture capital’s reckoning looms closer: Valuations on holdings will have to converge sooner rather than later with listed tech sector. (Financial Times)
• We’re in the second biggest home price correction of the post-WWII era—here’s the latest data: For 124 consecutive months, spanning the bottom of the previous bust in February 2012 to the top of the Pandemic Housing Boom in June 2022, the seasonally adjusted Case-Shiller National Home Price Index reported positive home price growth. Now we’re in a new streak: Four consecutive months of U.S. home price declines. (Fortune)
• 2023 Will Be the Year of the Electric SUV: A parade of cargo-friendly and affordable electric cars are coming next year, though it will still be tough to buy one. (Bloomberg)
• The year EVs outgrew Tesla: The transition to electric vehicles hit several milestones in 2022. (Vox) see also With New EVs Arriving, Brand Loyalty Goes Out the Window: Willingness of drivers to switch opens opportunities for car companies (Wall Street Journal)
• Eyeliner Out of Stock? Blame TikTok: Items going viral on social media sites are selling out, posing new supply-chain challenges. (Wall Street Journal)
How TikTok Became a Diplomatic Crisis: A Chinese app conquered the planet — and now the U.S. is threatening to shut it down. Can the world’s biggest virality machine survive? (New York Times)
• How the marijuana ‘green rush’ fell apart: A cannabis glut in several states has depressed prices for legal pot, pushing small businesses into turmoil. (Washington Post)
2022 Wrap-Up:
Great collection of Kevin McCarthy memes.
https://www.washingtonpost.com/politics/2023/01/05/memes-kevin-mccarthy-house-speaker-vote/?utm_campaign=wp_post_most&utm_medium=email&utm_source=newsletter&wpisrc=nl_most&carta-url=https%3A%2F%2Fs2.washingtonpost.com%2Fcar-ln-tr%2F38bc128%2F63b70842ef9bf67b234bebad%2F59d98316ae7e8a5c05690809%2F60%2F72%2F63b70842ef9bf67b234bebad&wp_cu=537276a2f10a96edc0a6cde7675627c7%7C6D106CD029825E85E0530100007F8DF4
https://pbs.twimg.com/media/FlrY7HLX0AAyQkw?format=jpg&name=small
https://pbs.twimg.com/media/Flq66y6X0AAsXGM?format=jpg&name=small
https://pbs.twimg.com/media/Flq66y7XkAEzDQq?format=jpg&name=360×360
ROFL!
I apologize in advance for making you watch Hannity but WOW!
https://www.youtube.com/watch?v=_hF5aw5K9-Q
We are just hugging that 3,840 line:
This is technically bad because we’re dragging the 200 dma below our base-line (which will make it very hard to get back over 4,000) and weakening the 50 dma so much that it may curve lower and fail to get over the 200 when they meet up (end of April at this pace) and that rejection would be as bearish as the one we had in September, when the 50 dma curved down and we fell 500 points.
Nasdaq is not any better at 11,000 – the 50 WEEK moving average is already power-diving into the 200 WEEK moving average at about 34 points per week so 1,000 points will still take until July but what a catastrophe if things don’t turn around by then!
Or if the Fed tightens aggressively.
Or if Putin escalates the war.
Or Covid spreads again.
Like this:
Hopefully that (deaths) is just catching up for the Holidays with a 6,369% increase.
So I was in a Bed Bath & Beyond this weekend because their on-line store sent me decaf Nespresso pods (who the hell drinks that?) and the store was immaculate because it was completely devoid of customers.
There were 4 people taking care of a huge store and they don’t even stock coffee pods (or many other things) with signs saying “please go on-line to order”. So I go to a physical store to find signs telling me to go to the web-site? This is how retail cuts its own throat.
They are offering 25% off everything online.
What happens to all my blue coupons when they go away?