Monday Market Mayhem – Focus Shifts to Debt Talks


Debt May 15 2023Powell and Bernanke are speaking on Friday at 11 am.  

Before they have a go, we will hear from 11 Fed Governors this week – the most all year and that’s because, at any given moment, the talks on the debt ceiling may collapse – along with our economy.  Due to the series of delays leading up to this point, the Government now has $88Bn worth of measures remaining to avoid default, down from $333Bn that were available. 

Keep in mind that this is for a Government with a $6Tn budget that pays out $16Bn a day although, fortunately, May is a good month for tax collections though the money has, so far, drawn down faster than expected due to lower than expected rates of collections. 

The debt limit is actually $31.4Tn so we are $348Bn over the limit already so the $88Bn we have left is up for debate but that’s the number the government is going for and the deficit is about $4Bn per day so, if we are very, very lucky, we have 22 days left until the Government is completely broke. 

This is worse than the last shutdown because the last shutdown was declared when the Government still had $300Bn of reserves.  This time we’ve blown through them ahead of the shutdown so this may be the last Social Security check Grandma sees for a while and, if you have any Medicare-funded pills or procedures scheduled – I’d move those up as well! 

Calendar May 15 2023

22 days is also when we will no longer to be able to pay interest on our bonds, which will place us in default and there will be no point in scheduling any more bond auctions – as we will not have the authority to sell more bonds.  There are layers and layers to this catastrophe and they will begin peeling off very quickly and yes – we will all be crying!  

10 Questions on the U.S. Debt Ceiling - WSJ

Back to 2011, the debt ceiling debacle led to the first-ever downgrade of the U.S. credit rating. The threat of default loomed large, and Uncle Sam’s financial reputation took a hit, leaving investors jittery and markets rattled. In the end, a last-minute deal was struck, narrowly averting disaster. 

Nonetheless, we did it again in 2013, which resulted in a 16-day government shutdown. It was a moment of political brinkmanship that showcased the ‘art’ of negotiation and left federal employees twiddling their thumbs. That cost the Government and additional $24Bn when our deficit was less than half what it is today.

Godzilla DCSo let’s buckle up for this rollercoaster ride of political brinkmanship. The outcome will have a domino effect on Global Financial Markets, Investor Confidence (which already collapsed last week) and the overall economic landscape. 

Standard and Poors still has the US credit at AA+, not AAA and, keep in mind that a lower credit rating means higher borrowing costs and even more interest on our $31.7Tn in debt – that’s how idiotic our Government is being!  

Meanwhile, Corporate Bankruptcies are already up 216% from last year and that is only through APRIL!!!  UBS also found in a recent study that bankruptcies worth $10 million or more had a rolling average of about 8 per week.  “Banks are battening down the hatches, hogging their bailout money instead of lending it out,” said Economist Peter St Onge, adding small business surveys reveal the biggest deterioration in lending since the 2008 crisis. 

That means major banks will have to increase their loan loss reserves, which comes out of profits and further tightens conditions.  

What other ingredients do we need for the kind of perfect storm that sank the economy in 2008?  How about that, aside from the well-known, looming disaster in CRE – with 50% of leased office space currently unutilized and 1/3 of all leasable space already empty – we are now seeing signs of weakness in the housing market.  

Financial institutions lost an average of $301 per loan they finalized in 2022 — in stark contrast to the $2,339 profit per loan that was reported in 2021 — equating to a 113% decrease, per Business Insider. The MBA noted this is the first time it’s seen profits in the red since reporting began in 2008.  It’s yet another result of a very tenuous housing market in which there aren’t many available properties. Buyers and sellers are both holding out with interest rates soaring, now nearly double the 2-3% fixed APR the market had seen in recent years.

“The rapid rise in mortgage rates over a relatively short period of time, combined with extremely low housing inventory and affordability challenges, meant that both purchase and refinance volume plummeted,” Marina Walsh, vice president of industry analysis for the MBA, was quoted as saying in a press release. “The stellar profits of the previous two years dissipated because of the confluence of declining volume, lower revenues, and higher costs per loan.”

We will look for signs of this affecting companies in this week’s earnings reports, which are mostly about the Retail Sector:

The most anticipated earnings releases scheduled for the week are Alibaba #BABA, Home Depot #HD, Walmart #WMT, #MNDY, Target #TGT, Sea Limited #SE, Baidu #BIDU, Workhorse #WKHS, Azul #AZUL, and Nu Holdings #NU.

And the sign says “Everybody welcome come in, kneel down and pray”
But then they passed around a plate at the end of it all
And I didn’t have a penny to pay – Five Man Electrical Band 


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Good Morning.

Good morning

Good morning Phil,

at what point do I pull the plug on SOFI?! As bullish as i am, it’s hard not to get cold feet after weeks of downward pressure and now a downgrade from WB.

I’ve rolled and closed short calls.
(mostly uncovered $3s, a few short $10c and short $10p’s)


Hello Phil, I’m a new member here. I’m planning to initiate a new trade, but I’ve noticed that the options’ prices are not exactly as your target, especially when SOFI is experiencing rapid movements. Could you advise me on the best approach to take? Is there a specific target range that we should aim to stay within? Thank you

Phil I think you mean 5.50 PUT not Call

Thx Phil

I tried to redo the math (hope I got it right):

For the $5.50 puts, I calculate 20 X $20 = (4,000) for a net debit of $3,450.

Upside potential at $5 becomes $10,000 – $3,450 = 6,550 gain divided by $3,450 = 190%.

Worst case is owning SOFI for $11,000 + 3,450 = 14,450 divided by 2,000 shares = $7.2225/share – current price $4.50 = $2.725 divided by $4.50 = 60% above the current price!

If you don’t do the puts, then I calculate:
The bcs costs: $12,250 – 4,800 = $7,450
Upside potential at $5 becomes $10,000 – $7,450 = $2,550 gain divided by $7,450 = 34%.

I love the idea of the Income Portfolio. Just checked the watchlist. I know you aren’t fond of ETFs but other than that, wondering if JEPI would be a good fit for this sort of portfolio.

Thanks Phil. I appreciate the answer. Makes sense.

The SOFI spread had an error. Selling 2 puts per combo trade @$2 yields 4000 (not 11000)

phil, is there an options way of playing the OJ July over $250 bet?

phil, in the case of SE, wouldn’t you expect Covid to have sped up their revenue stream growth, instead of slowing them down? they are an online shopping , financial services and gaming, so can’t we think of them as Amazon, Paypal, and EA rolled up into one?
Because the stock price collapses starting in Jan 2022, when SE Asia started to reopen following mass vaccinations.

sorry duplicate comment.

Last edited 24 days ago by vidt