Faltering Thursday – Bad Data and Bad Earnings Batter Markets in Harsh Reality Check

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Things are tough all over. 

New Zealand’s Prime Minister resigned this morning as that economy goes in the tank and the French are FREAKING OUT that the Government is considering raising the Retirement Age from 62 to 64 in 2030 in order to balance their own SS and Medicare systems without having to raise taxes/debt or cut benefits (something we discussed that the US is facing even more imminently in yesterday’s webinar).  

The French capital ground to a halt as teachers and railway, health and oil workers went on strike, forcing many schools and nurseries to shut down.  Trains, subways and buses were severely curtailed, and dozens of flights were canceled.

Tough choices are what Recessions are all about.  Depressions come about when no choices are left.  

Similar debates are playing out across Europe as populations age and people live longer, putting growing pressure on government finances. France has one of the lowest poverty rates among the elderly in Europe, but it spent 13.8% of its gross domestic product on pensions in 2021 – more than most other European countries.

Gif Mafia: Red Version | ResetEraThe US, in case you want to check, spends $1.25Bn a year on Social Security and another $350Bn on Veteran’s benefits, so let’s say $1.5Tn on Pensions (the VA does other stuff too) out of a $25Tn Economy is just 6% and we are freaking out about that!  And yes, France has Universal Health Care – THAT program is not up for debate. 

 Like many countries, including our own, France is suffering from demographic math:  France had four workers for one retiree at the end of the 1950s, two workers for one retiree at the beginning of this century, and 1.7 now, said Jean-Marc Daniel, an economics professor at Paris-based business school ESCP Europe.  “It will go down to 1.3 if we do nothing,” he said. 

China Housing Market SlumpThis is the same problem China is rapidly facing with their own now-declining population.  China’s housing market flipped from being a growth driver to an economic drag in 2022, with sales slumping, prices falling and widespread job losses. The prognosis for this year isn’t much better.  

Sales of new residential properties in the country tumbled 28%, to a five-year low.  By floor area, they dropped to their lowest level in nearly a decade, after a wave of real-estate developer debt defaults, delays in construction of unfinished apartments and Covid-19 lockdowns dampened consumer confidence.  Land sales by area declined 53% in 2022 to a level below that of 1999, the year China’s National Bureau of Statistics began releasing the data.

These are the signs of a disaster that is just beginning – not ending.  Less land to build on will show up in not enough houses to live in LATER this year and next.  Chinese authorities have, over the past decade, tried multiple times to bring down what they have long seen as excessive borrowing by property developers and speculative activity in the country’s housing market. Each time they tried to slow the sector down, they ultimately backed away because it caused too much pain on the economy.  Now we will see what happens when the bubble just bursts on its own…

We’ll also get to see what happens when the US hit’s it’s borrowing limit today and the answer is nothing – yet.  It’s not too different when your bank account goes to zero – you stop writing checks and switch to credit cards.  The problem comes when you can’t pay those bills and they cancel on you.  At least that buys the US about 6 months before it really starts to matter.  

TNX Jan 19 2023

Virtually all financial assets on the planet are priced in relation to Treasuries, so you could argue that if the U.S. Treasury defaulted, there would be nowhere safe to go. The entire financial world would suddenly become much riskier.  Bizarrely, since World War II, after every previous debt ceiling crisis — and, indeed, whenever markets have panicked — investors around the globe have typically flocked to the U.S. Treasury market as a safe place to park their money – so don’t bet on anything to be rational for a while.  

 

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Good Morning.

Good morning. Looks like a down open?

Hi Phil – PFE back to below 45, and I had sold it >50, so I think now is a good time to re-enter? Our LTP has June 2024 Calls; but for a new position, 2025 $40-50 spreads with short $40 puts? Or is it better to wait for earnings even for PFE? Their CEO was talking on Bloomberg about a MRNA Flu vaccine in the first half of this year, and I am pretty bullish, so I am concerned about it going back up post-earnings.

Is there a better spread/strategy you would suggest? The only other pharma position I have are significantly OTM short puts on MRNA.

Thanks! I have never considered rolling the short wing of a call spread further out as a bullish position, but it makes sense.

If everyone is talking about a recession, maybe we should assume the recession will not be here. Have markets ever correctly predicted a recession?

oil report is out. looks like it would have be a big build if they didnt have minus 9 million barrels in other oils and unfinished oils.

Morning Phil,

What is a good investment in this high interest rate environment? I series bond are paying 6.89 till April and then it will reset. Not sure what the next 6 months rate will be.

How are fidelity broker CDs? Or just picking a higher rate 1 year CD from a bank?

AA CDs offer higher rate but have never invested in them before.

Appreciate your thoughts as always

Regards
Pat

3 month CD’s are paying 4.30% and 6 months are paying 4.50%

Thanks Bert,
Which bank is this?

pat, Schwab is offering 6 month treasuries for 4.81%

Thank you Phil!!

Appreciate it. I will try to read about those municipal bonds.

Regards

Hi Phil,
Any recommendations on buying/rolling the expiring tomorrow LOVE Jan 20 2023 25.0 Put from the Earnings Portfolio?

Thanks Phil,
I just bought mine back because it currently looks $0.70 in the money.

Phil / NG,
I am in /NG at an average cost of 3.8. What are your thoughts around exiting now at a loss or roll into a future month contract and hope for a recovery?

Looks like more pain here as traders roll from the Feb to March contracts. I see the feb contract /NGG23 dropping more today than the Mar /NGH23. Are you all trading the Feb or March contracts?

Don’t forget about Money Market Funds, Schwab is at 4.27 % for SWVXX and 4.42% for over 1mm. Yes, the rich do get richer. It was not worth the hassle of transferring cash funds when it was for a dime of interest, now it can make a difference. This is until the government default winds start to blow harder, then we may have to look at other options. The recently issued six month US Treasury Bill 07/20/2023 yields just over 4.8%. .

any nuggets of knowledge in that 1pm oil update phil?

Phil,
Would like your thoughts on selling DG puts (1/24 180s are 7.35ish) in that DG (now 224) caters to folks in a more rural, lower income market who would be more inclined to shop locally and for lower echelon products if a recession becomes a reality which might suggest that their numbers rise rather than fall especially if supply chain issues are resolving. TIA

Circle C is an even more rural, lower income outfit. That’s about all there is in small towns in Nebraska.

I saw today that SunPower (SPWR) dropped ~10% today. Any idea what’s causing this?

TDA’s quote page says something like

“*Nasdaq FSI: *Deficient: Issuer Failed to Meet NASDAQ Continued Listing Requirements”, but I don’t see any news so that might be a mistake?