Testy Tuesday – FOMC Meeting Begins


Funds May 2 2023Let the rumors fly!  

The FOMC meeting begins today but the actual rate decision comes tomorrow at 2pm. Between now and then the market will react to any supposed leaks that come out of the meeting.  

As you can see from the WSJ Chart, we are in the steepest tightening cycle the Fed has ever gone through and it’s also the most in total but, to be fair, 0.25% was an artificial fantasy of economic stimulus – this is like being surprised that ice melts when you take it out of the freezer – it is simply not the natural state of water.


The natural state of interest rates are more like 3.5% and, at the moment, we are only 1.25% over that.  It just feels like a lot because we’ve been below 1% for so long we’ve gotten used to it.  Our main concern about Q1 Earnings was that companies might not handle the adjustment well and would let their debts eat into their earnings but that has not, so far, been the case for most companies.

As you can see from the long-term chart, the Fed did raise rates back to 5% pre-Covid and we did not act like the World was ending then (even though it was about to) and they are simply going back to 5% now but 5% is where they got to BEFORE we popped the money supply by 300% and caused MASSIVE INFLATION – the kind we had to raise rates to almost 20% to calm it down in the late 70s/early 80s.  This is NOTHING!  

Visualizing the History of U.S. Inflation Over 100 Years

The Fed began raising rates from near Zero in March 2022 as inflation was topping 8% for the first time since the 1980s. Another quarter-point increase would lift the benchmark Fed Funds Rate to a 16-year high. Fed officials are aware that their communications around future policy actions can be as significant as individual rate changes. They will finesse carefully calibrated signals in their post-meeting statement and remarks by Fed Chair Jerome Powell at a news conference after the meeting ends on Wednesday.

Generally, Powell has been good for a market pop the day of his press conferences but things tend to fall apart after that – so we probably won’t start buying for our new portfolios until next week.  

What the Fed will be looking carefully at is Jobs.  We have too many of them at the moment by about 9.5M (which will be confirmed in Fridays Non-Farm Payroll Report).  That’s 5.6% more jobs than we have workers and that’s a huge problem – one I’m sure you see the effects of whenever you are waiting for food to be cooked or for someone to help you at the store but it’s also keeping your washing machine from being delivered and it’s taking longer to build your new car or new home and it’s the main force driving inflation:  

Job Openings: Total Nonfarm (JTSJOL) | FRED | St. Louis Fed

So the Fed has a mandate to maximize employment and to control inflation.  Employment has overshot their goal by 5.6% and Inflation is still more than double their goal of 2% and it’s really not possible to increase the workforce without Immigration (we need 9.5M people) or maybe just having lots more babies (abortion already banned) who will join the work-force in 20 years or (GASP!) pay wages that encourage more people to enter the workforce.  

Since none of those things are going to happen (other than the baby-growing idea, which takes 20 years although, combined with dismantling child-labor laws, the GOP may be onto something…), the best way the Fed can close that worker gap is to reduce the number of jobs required and, fortunately, destroying the economy is easy – you just have to keep raising rates until demand collapses!  

Yes, that is their actual plan at the moment and I don’t see why they would be “done” raising rates with 9.5M jobs still unfilled and core inflation still over 4% – those are both fails for their dual mandates!  

Jeff Bezos is the richest person in the US, with a net worth of $201bn.The market is not likely to be very happy if the Fed does not get a pause but, as I just said, the Fed wants an unhappy market that will pare away 9.5M job openings and the only thing they can really control is how high they set the Fed Funds Rate.  None of this is going to do anything about the $3Tn they have floating around in the money supply – that will also put upwards pressure on inflation for years to come but, fortunately, most of that money ($4.5Tn – other counties gave them money too!) went to people who are already rich so, as long as they continue horde it – we’ll be OK.

According to recent figures by the European Union’s statistics agency, Eurostat, Consumer Prices in the Eurozone were 7% higher than a year earlier in April, a pickup from March and more than three times the European Central Bank’s 2% target. However, the core rate of inflation – which excludes food and energy prices – edged down to 5.6% in April from a record high of 5.7% in March.

Profits May 2 2023Some economists have noted that businesses are taking advantage of the situation and padding their profits, which is fueling inflation. Rising Wages were actually a lesser factor than rising profits and businesses are confident that Consumers will accept higher prices.  This is largely happening because Consumers are aware of supply bottlenecks and higher energy prices.  

Economists also suggest that the lack of competition in the food sector, especially in distribution, is another reason for the surge in food prices. It appears that businesses, in some cases, are using our national crisis as an opportunity to boost their profit margins.

While it’s nice that our Corporate Masters (who are also in the Top 0.1%) are doing what they can to take all that nasty money out of circulation – there is the eventual question of “Can we afford it?” and, if they don’t take that into account – the customers eventually run out of money and their “improved margins” can be very short-lived as we fall into a Recession.  

Those are the kinds of data cross-winds we will be paying attention to because it’s not just about WHAT the Fed does – but whether what they do ultimately makes sense for our Economy going forward.  


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Good Morning.

Good morning. Happy Tuesday

In a sea of red….. Go Yeti!!!

Just gonna say!!!!!!

Phil mentioned one time it wasn’t connected to the indexes or something like that. Phil?

Good Morning to all! Phil, I see you may be feeling the pressure to restart the portfolios but hopefully you are enjoying your time off of portfolio watching(yeah right). I hope to be engaged here on this board to help with my education and I would welcome any and all responses from all you members out there willing to take the time to write. Thank you to all if and when you do share. What I am hoping to know now for planning purposes are the portfolios you are starting up and the amounts that you will be allocating to each. I understand they may be Long/Short, Butterfly, One Hundred Thousand(1K), Income, Money Talk, and $700/mo.. Please explain allocation blocks as I have an issue with margin. IRA monies at TD Ameritrade do not allow Margin(which is the right thing to do). As I believe and please correct me here, each portfolio starts with 10 blocks and Margin accounts have twice the amount of capitol to work with than actual money in the account. So each block is 10% of the total and the first trade is no more than 25% of that block spent on the trade. Leaving the place for a doubling down scenario bringing that block allocation to 50%. I understand the webinar reading at the start of each one but I would like to know considering 2008-09 portfolios designed around using the PE’s of today would you have escaped Margin calls with these PE’s? Correct me if I am wrong, with so much cash in all the accounts Margin hasn’t been an issue in the recent past. Will the portfolios start with protection(hedges) against a 10% drop or will profits on the longs be needed before the hedge is placed? If it is easier, a webinar answer would be fine. Thanks Phil and I am ever so grateful.

Thanks Phil do I understand you correctly that all of the portfolios other than Long/Short, you position them as good for suggestions to follow in ones IRA that do not allow Portfolio Margin? For example if one has a $100,000 IRA one could follow the trades in say the 100k self hedging portfolio as stated without having to adjust the number of options being played.

AI is one of their issues in the negotiations.

I went down a rabbit hole about Kokopelli the other day, and found speculation that Kokopelli’s origin was traveling peddlers, who of course, bard-like, would bring news of the broader world into the village.

Well, yes, traveling peddlers bring news and help out with population……

Based on what I have read of their T&Cs, Microsoft would own the scripts.

Phil, do you have any interest in a pot shot put sale on the KRE, or you would judge it too risky?

feels like its still a falling knife. First it was just one bank, then 2 then 3, then…
However, not likely KRE would be delisted

my intuition has got a hold of me. it is a falling knife. its hard to resist selling 2025 Dec $35 for $6, you’re in at 29. and Jerome can’t really let the system collapse. i didn’t put on the last KRE trade that came through here, but something about this situation seems closer to a bottom. can you imagine the KRE for 20?

FWIW this trade was posted on 3/21:
In the Short-Term Portfolio, let’s add: 

  • Sell 30 KRE 2025 $45 puts for $7 ($21,000) 
  • Buy 100 KRE 2025 $45 calls for $9.40 ($94,000) 
  • Sell 100 KRE 2025 $55 calls for $5 ($50,000) 

That’s net $23,000 on the $100,000 spread and, once we’re really in the clear, we can spend less than $4 to roll $10 higher to the short $65 calls, now $2.40 and we’ll have a $200,000 spread for $63,000

It’s KREp for now. Got it.  😎 

Wow, Phil, my first instinct was to ask you if it’s too risky, and I hear that you think it is. sometimes, like today, the market is moving really fast, and I got excited about getting something cheap. I have previously thought KEY, USB, ZION, FITB, NYCB and some others were well run banks, but some of those are getting hammered just the same. If the S&P drops to 3000, I would just buy all that crap blind; so I was kind of asking myself what’s my ‘buy it blind’ price for KRE. I didn’t buy the KRE earlier because I wasnt lazy. I made short lists of my favorite banks, compared tangible book values to current prices, and looked at their AFS and HTM levels, among other things. And I decided things could get cheaper based on that and also because we were only 2 weeks into this new version of bank crisis.
I certainly don’t mind being told some idea I have got is a bad idea. In fact, that would be one of the main reasons to post, to be told “hey slick, not so wise.” So, if we’re not lazy, which babies ARE they throwing out with the bath water in the KRE?

Phil, just to update —

TD Direct Investing latest rules (incomplete list) —

  • KRE — unrestricted, fully marginable
  • KEY — now unrestricted, but only 50% loan value
  • FAZ — restricted
  • FAS — restricted
  • SOFI — restricted, banned, cursed to eternal damnation for ever and ever and ever…
  • NYCB — unrestricted (thank God)

I don’t get what they know that the rest of us don’t…

Also, OXY getting down in the range.

PXD looking interesting from an M&A standpoint. April 10 there was an XOM takeover rumor, then on April 25th the CEO announces retirement.

i like them both.

i liked OXY because even if oil craters, Buffet is waiting in the wings to buy it all.

on April a trader sold 900 OXY June24 $60 puts for $8.20 (now $8.80) and on April 25 a trader sold 1650 June24 $55 puts for $5.95 ( now $6.50 )

a Jan25 $60/50 covered short strangle pays $18.50, not bad, but ties up capital for tiny dividend

I really like that. I’m going to use that covered OXY strangle. Thank you.

if we posit that bank stocks continue to crater, that forces Jerome to cut, then KRE jumps, if only temporarily. if bank stocks don’t get worse, they don’t get worse. seems like heads and tails winner. famous last words, of course.

Phil, whats your take on IEP (Icahn enterprise)? After the Hidenburg report today the stock dropped to 40$ and $2 divident /qtr is 20% yield. Do you think the Hidenburg report has any truth to it? Could Icahn be really running a ponzi scheme?

Phil, sorry to ask this again, but I wasn’t clear yesterday.

I understand you don’t enter a NG futures contract until it is close to $2.00. It is $2.20 now, down from $2.30 yesterday.

If one can’t play futures, can you instead buy the UNG $5.50 – $6.50 June 2 expiry BCS for around $0.50? To make a profit similar in spirit to the futures trade?

I’m assuming here that NGK at $2.00 roughly corresponds with UNG at around $6.40.