Faulty Friday – Our First AI-Powered Pick is a Huge Miss

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Shel-BotHow annoying!  

After asking Shel-Bot (our Bing-based AI) to forecast hit’s and misses in the next day’s earnings reports, he’s been getting better and better – even going the past two days without a single wrong call so, yesterday, we asked him what would happen today and he said:  

    •  🤓 Catalent (CTLT): I expect this stock to miss expectations because it is a provider of drug delivery technologies and development solutions for the pharmaceutical and biotechnology industries, which has been facing challenges such as lower revenue from its biologics segment, higher operating costs, and currency fluctuations . The company has also reported negative earnings surprises in two of the past four quarters1.
    • Deere (DE): I expect this stock to beat expectations because it is a manufacturer and distributor of agricultural and construction equipment, which has been benefiting from the strong demand and pricing for its products amid the recovery of the global economy and the agricultural sector . The company has also delivered positive earnings surprises in four of the past four quarters2.
    • Foot Locker (FL): I expect this stock to beat expectations because it is a retailer of athletic footwear and apparel, which has been recovering from the pandemic-induced store closures and inventory issues . The company has been accelerating its digital transformation, optimizing its store fleet, and enhancing its product assortment and customer loyalty program . The company has also delivered positive earnings surprises in four of the past four quarters3.
    • RBC Bearings (RBC): I expect this stock to miss expectations because it is a manufacturer and marketer of engineered precision bearings and components, which has been negatively impacted by the slowdown in industrial activity and capital spending due to the pandemic . The company has also reported negative earnings surprises in two of the past four quarters.

Earnings were actually a 10% miss with a drastic cut in their forecast range to $2-$2.25 vs $3.35-$3.65 before this report.  The stock is down 20% pre-market.  Shel-Bot gives this summary of earnings:  

 🤓 Foot Locker Inc. (FL) is a retailer of athletic footwear and apparel. It operates more than 3,000 stores in 27 countries under various banners, such as Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Eastbay and Footaction. The company reported its earnings for the first quarter of 2023 on May 19, 2023. Here is a summary and analysis of the earnings report:

The earnings report shows that Foot Locker faced significant challenges in the first quarter of 2023 due to the pandemic and its long-term effects on consumer demand, store operations and supply chain. The company missed both earnings and revenue estimates by a wide margin and saw its profitability decline sharply. The company also did not offer any outlook for the future, indicating a lack of visibility and confidence in its recovery prospects.

However, the earnings report also reveals some positive aspects that could support the company’s long-term growth potential. The company continued to invest in its digital capabilities and omnichannel initiatives, which helped it drive online sales growth of 43% in the quarter1. The company also maintained a strong balance sheet with ample liquidity and low leverage, which could enable it to weather the crisis and pursue strategic opportunities1. The company also resumed its dividend payments and share repurchases in the quarter, signaling its commitment to returning value to shareholders1.

Overall, the earnings report suggests that Foot Locker is facing a tough environment due to the pandemic and its aftermath, but it is also taking steps to adapt and innovate in order to emerge stronger when conditions improve.

Mayor Adams Announces Shoplifting Crackdown | 77 WABCShrinkage (as we discussed yesterday) is also a problem at Foot Locker and for a retailer who only makes $342M (3.9%) in $8.75Bn in sales, even a 1% theft rate can destroy the profitability.  That plus the very discretionary nature of footwear with a challenged customer base were the two major factors that were missed in the analysis.  

FL is also behind the inflation curve, with the prices they are paying having risen before they’ve been able to pass them along to consumers who, for the most part, have shoes and simply wear them for another 6 months when times are tight before spending money on new shoes.  Eventually, they will get back to their normal 5% margins and $3Bn (at $30) for the company will be a bargain.    

We sold 10 of the FL 2025 $35 puts for $5.75 ($5,750) in the Short-Term Portfolio but, since we missed, the trade moves to our Long-Term Portfolio where we will add a bullish position of 15 (to start) 2025 $30 calls at $7 ($10,500) and we’ll wait a bit and see if there’s a bounce before selling any short calls.  That will put us in the 15 longs at net $4,750 so our break-even will be $33.16.  If we are able to sell 10 of the 2025 $45 calls for $4.75 on a bounce, then we will enjoy a free spread (with the obligation to buy 1,000 shares of FL for $35 down the road).  

That was our backup plan in the first place and the net of the sale of the $35 puts was $29.25 (actually $5.40 as $5.60 was the final price for the puts) – which is where we felt safe as an initial entry should they miss – and here we are already so why would we not follow through with our plan?  

I like Foot Locker because shoes are not something that’s very successful on-line as you really have to try them on to be sure.  While they may be in a down cycle, old shoes do eventually wear out and people have to get new pairs at some point.  CROX is another one of our favorites but holding up much better than FL.  

As we restart our Short-Term and Long-Term Portfolios, we do have a free window to play these short-puts in the STP because, if it goes against us, we can just flip them to the much larger LTP, which will then start with a highly discounted position (assuming we still have overall faith).  

As to Shel-Bots other picks for the morning:  CTLT announced it’s report would be delayed and they lowered guidance – that’s a win for our bot.  DE had a considerable beat and raised guidance – winner for Shel-Bot and we’re still waiting on RBC to report.  

Using what we’ve learned from this week’s predictions, I’ve tweaked Shel-Bot’s analysis for future predictions so let’s see what he thinks Monday’s Earnings Reports will look like:  

 🤓 Here are my predictions for the companies that will report earnings on Monday, May 22, 2023 and the reasons behind them:

Covid Lingers.jpg
Covid Lingers.jpg

By the way, I said to Shel-Bot: “You mention Covid a lot but it’s May 19, 2023 and the US has declared the emergency over. Why do you still consider it to be such a factor in your earnings forecasts?” and his response was:  

 🤓 I mention COVID-19 a lot because it is still a factor in the earnings forecasts of many companies, especially those that operate in or depend on international markets. Even though the US has declared the emergency over, the COVID-19 situation is not the same in other parts of the world. 

According to the WHO1, as of May 10, 2023, there have been over 765 million confirmed cases and over 6.9 million deaths globally. Some regions and countries are still experiencing high levels of transmission, hospitalizations and deaths due to COVID-19 variants, low vaccination rates, limited health system capacity and public health measures2. 

For example, Puerto Rico reported a COVID-19 positivity rate of 17% as of May 17, 20233, while Metro Manila’s COVID-19 positivity rate was 26% as of May 17, 20234. Sabah, Malaysia also reported a surge in COVID-19 cases in May 20235. These are some of the markets where the companies that I mentioned operate or sell their products or services. Therefore, COVID-19 is still a relevant and important factor to consider in the earnings forecasts of these companies.

The COVID-19 positivity rate is defined as the percentage of people who test positive for COVID-19 out of all the people who are tested. It is an indicator of how widespread the infection is in a population and how adequate the testing is. A high positivity rate means that there are more undetected cases and that the testing is not sufficient to capture the true extent of the outbreak. A low positivity rate means that there are fewer undetected cases and that the testing is more comprehensive and reliable.

According to Worldometer1, as of May 18, 2023, some of the countries with the highest positivity rates in the world are:

Country Positivity Rate (%)
Seychelles 57.7
Mongolia 43.8
Maldives 40.9
Botswana 38.9
India 36.5
Nepal 35.8
Suriname 34.6
Trinidad and Tobago 33.2
Bahrain 32.4
Argentina 31.9

 

These are some of the parts of the world where COVID-19 is still a serious public health threat and where more testing and preventive measures are needed to contain the spread of the virus.

So actually, it’s more like:

Covid Lingers.jpg
Covid Lingers.jpg

Have a great weekend, 

    • Phil

“Don’t mis-serve your own needs
Speed it up a notch, speed, grunt, no, strength
The ladder starts to clatter
With a fear of height, down, height
Wire in a fire, represent the seven games
And a government for hire and a combat site

“It’s the end of the world as we know it
It’s the end of the world as we know it
It’s the end of the world as we know it and I feel fine” – REM

 

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Good Morning.

Good morning and happy Friday!

I would appreciate your opinions on the dilemma I am facing:

I have 10 AAPL June 16 130 calls, and 10 AAPL June 16 135 calls.
Shorts against them are 10 AAPL May 26 177.5 calls.

The question is: should I roll them to future, or just cash them by June 16?

Thanks everyone!

AAPL is only at $176 so the short calls should expire worthless (or close), leaving you with $46,500 on the $130s and $41,500 on the $135s.

So the question is, what to do with $88,000 involving AAPL stock really…

As a new trade on AAPL, though they are making $100Bn a year, they are valued at $2.75Tn at $175 so it’s not like you discovered them ahead of the market. I would play them like $200 is the top and $150 probably the bottom though they were just at $130 in Jan – so it could go lower.

That being the case, I’d want to concentrate on selling calls but not the way you did it. I’d go with the following:

  • Buy 15 AAPL Dec 2025 $160 calls for $46 ($69,000)
  • Sell 10 AAPL Dec 2025 $200 calls for $26.50 ($26,500)
  • Sell 5 AAPL Dec 2025 $160 puts for $17.50 ($8,750)
  • Sell 7 AAPL Sept $180 calls for $8 ($5,600)

That’s net $28,150 on the $60,000 spread so there’s $31,850 (113%) of upside potential at $200. We’re collecting $5,600 by selling 119 of our 945 days so figure 7 more sales can bring in $35,000 more if all goes well (it never does). $5,600 against the $28,150 cash outlay is 20% per quarter coming back to us while we wait PLUS whatever we make on the long spread.

Should AAPL go higher, we can roll the puts along and we have lots of cash to buy more longs. Should AAPL go lower, the short calls go worthless and next time we might sell some short-term puts as well as calls – drastically increasing our potential returns. Our worst case is, of course, having to buy 500 shares of AAPL for $160 ($80,000) plus whatever we lose on the spread.

Let’s make this the first position in our new $200,000 Butterfly Portfolio as well as the LTP, which will play it more aggressively over time.

Last edited 21 days ago by phil

Two thumbs up!!!

GM Phil – Can you address a general question on the short calls in the income portfolio? Is there a rule or guideline for when you look to roll the? A DTE guide or an opportunistic pop in VIX? I got filled on the SOFI short calls yesterday, July exp. I assume at some point those will be rolled out, possibly up for 90ish DTE at that time. Any input is appreciated.

SOFI back over $5, very nice.

I’m not understanding your question as it seems to indicate selling SOFI July $5 calls and I certainly don’t remember doing that in any of our portfolios. The idea was to wait for a bounce back over $5 and THEN maybe sell some short calls against our 50/30 2025 long position. ($3/5)

I know everyone wants a “cheat sheet” that tells you what to do when but that’s why most people lose trading options. You have to REresearch every time the stock makes a move and THEN decide if you need to roll or not. The general rule of thumb is if there is less than 50% premium left in a short call or put – you should be concerned and less than 25% is too late – so that’s pretty much the window in which you need to be deciding whether or not you should be rolling based on what has happened to change the situation since you originally had thought selling the $5 calls was a good idea.

If you have sold the $5 calls, they are still pretty much all premium that expires in 63 days so I wouldn’t be too concerned – especially if you have the longs to cover them. All you can lose the what you might have gained above $5 but the way we set up the spread, we get $10,000 back on a $3,550 cash outlay, so I’m certainly not going to be crying over my $6,450 (181%) gain in 18 months.

Learn to take a win and be happy!

Last edited 21 days ago by phil

Thanks. I interpreted the commentary on SOFI as you would like to get .50 or better for the $5 July calls. I got filled @ .53 on 30 (SOFI is one of the select positions I did not close out so I have a bigger legacy trade than the new one that you initiated). Just trying to understand the timing of the next sale or roll and what factors I should consider. I appreciate the rule of thumb and the advice as always.

Oh, I forgot I said that but, given the quick rise back over $5, I’m not in a hurry to pull the trigger on the short calls but, if $5 fails – we will take our lumps and get 0.45 or whatever for them.

Never forget the Microwave Oven Theory of Behavior!

 🤖 The Microwave Oven Theory of Behavior, as posited by Phil Davis, highlights a pattern of human behavior where individuals tend to stick to arbitrary decisions even in the face of new information or changing circumstances. The theory draws an analogy between cooking food in a microwave oven and decision-making, suggesting that people tend to repeat behaviors that have been successful in the past, feel the need to defend their decisions once made, and often stick to prior decisions despite new evidence or changing situations.

Davis’ theory has been discussed and supported by empirical research. These include Prospect Theory, Behavioral Finance, Anchoring Bias, Confirmation Bias, and many others. These theories have been developed by renowned economists and behavioral scientists such as Daniel Kahneman, Richard Thaler, Amos Tversky, and others, and their work has been widely cited and referenced in academic literature.

The article suggests that this behavioral tendency can be detrimental in various areas of life, including trading and investing. It encourages individuals to overcome this bias by learning from past mistakes, being open to reevaluating decisions based on new information, and not being trapped by arbitrary targets or opinions set in the past. By doing so, the article argues that individuals can make better decisions and potentially outperform the market.

*****************************

 🙄 Davis argues that people are not rational decision-makers. They are instead influenced by a number of factors, including their emotions, their past experiences, and the information that is presented to them.

Davis’ theory is related to a number of other theories in behavioral finance, including prospect theory, anchoring bias, and confirmation bias.

  • Prospect theory is a theory of decision-making that was developed by Daniel Kahneman and Amos Tversky. Prospect theory states that people make decisions based on the potential gains and losses, rather than the absolute value of the outcome.
  • Anchoring bias is a cognitive bias that occurs when people rely too heavily on the first piece of information they are given when making a decision.
  • Confirmation bias is a cognitive bias that occurs when people seek out information that confirms their existing beliefs, and ignore information that contradicts their beliefs.

Davis’ theory is also related to the work of Richard Thaler, who is a 2017 Nobel Prize-winning economist who has studied behavioral finance. Thaler has argued, like Davis, that people are not rational decision-makers, and that they are instead influenced by a number of factors, including their emotions, their past experiences, and the information that is presented to them.

Both Davis and Thaler have helped to popularize the idea that people are not always rational decision-makers. This is an important message, and it has the potential to help people make better decisions in their lives.

Davis’ theory is a useful way of understanding how people make decisions. It is important to remember that people are not rational decision-makers, and that they are instead influenced by a number of factors. This is important to keep in mind when making decisions, as it can help us to avoid making bad decisions.
Here are some additional thoughts on the article:

  • Davis’ theory is a humorous way of explaining how people make decisions, but it is also a very accurate way of explaining how people make decisions.
  • Davis’ theory is related to a number of other theories in behavioral finance, and it is important to understand these theories in order to understand how people make decisions.
  • Davis’ theory is a useful tool for understanding how people make decisions, and it can help us to make better decisions.

It’s cool that I can find my own stuff in the studies of AI though I guess, after 20 years of writing PSW, I’m like my own million monkeys – eventually I’ll come up with something useful!

Last edited 21 days ago by phil

Phil – thanks for the refresher – great analogy and rather enlightening!!

“…When Apple, for example is upgraded to $160 but it stutters at $145, SELL! Open the door and take the pizza, it’s done!!! If it isn’t (you take a bite of your pizza and it’s still a bit cold) then get back in. That’s right, the old me bought Apple at $120 when an analyst said $160 and the stock went to $142 in 3 weeks and I feel like a genius so I start counting my $40 profit and thinking about what I will do with it. The next week it “flatlines” between $135-$146 and volume drops but the old me said $160 and it looks like I was right before, as I’m up $25 – so I should have another $15 coming to me….

This is terrible logic!!!  Why are you listening to the old you? (I know, it sounds kind of schitzo) You’ve had 3 weeks of observations, yet you are willing to ignore that in order to slavishly follow, not even what you thought, but what some analyst thought 3 weeks ago (and he was probably listening to the old him).”

Hey, that’s good stuff!

Notice how I said: “It is a Nobel Prize-worthy theory” 10 years before it won the Nobel Prize – that’s pretty good predicting!

No kidding! Another “told-you-so” moment  😏  😅 

Good morning!

Things are looking good so far.

There’s no major economic data and Williams spoke at 8:45 but he’s a dove:

 🤓 This morning, Williams made some comments at a conference at the Federal Reserve in Washington, where he discussed the concept of the natural rate of interest, which is the interest rate that neither slows nor stimulates the economy. He said that despite the impact of the coronavirus pandemic and the inflation surge arising from it, the U.S. and other major economies are still in a fundamentally low-interest-rate world and that there is no evidence that the era of very low natural rates of interest has ended1.

He also said that his bank would be relaunching its public estimate of the natural rate of interest, which had been paused since late 2020 due to the uncertainty and volatility caused by the pandemic. He said that according to his model estimates, the natural rate of interest is about 0.5% in the first quarter of 2023 and subsequently falls to slightly below zero1.

He did not comment on the economic or monetary policy outlook in his remarks, but his comments suggest that once the Fed’s battle to contain high inflation is over, it may again at some later time be able to return short-term rates to low levels.

Powell speaks at 11 and then we can go party as it’s been a great overall week, with the S&P close to 4,200 (over at the moment) – up 60 points on the week is 1.5%.

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Nikkei closed well over 30,000

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DAX over 16,000

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Even Russell 1,800 finally.

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Nas is testing 14,000 so, if they hold into next week – we certainly have enough support levels to start picking up longs again.

FL is open now and the $35 puts have jumped to $8.70 ($8,700) so we’re going to officially roll them to 20 short FL 2025 $27.50 puts at $5.25 ($10,500) in the LTP and that’s going to end up as no trade in the STP and a net $1,800 (0.90 per put) sale in the LTP.

On the long side, the $30 calls are $7.50 so let’s go ahead and buy 20 of those for $15,000 and the $45 calls are $2.70 but they were $7.50 yesterday so, if we can sell them for $4.50 – I’d like to sell 15 of those and see how things go.

Hi Phil – what’s the position size in the LTP? Will the 20 short puts with 20 long calls be a full position?

We start the LTP with $500,000 and, though we have PM, we consider it to be $1M in buying power and we divide that over 20 blocks so $50,000 allocation blocks to start.

As we get more profitable, we make less conservative use of our PM in order to accommodate our short-put selling. In AAPL, for example, we just sold 5 Dec 2025 $160 puts for $17.50 and that’s net $142.50 and we think $130 should be a solid base so I consider the realistic risk to be $12.50 ($6,250) and the net PM on that sale is $4,622 – so I agree with TD on that one.

Since we have $50,000 to the allocation block and can only be forced to buy $80,000 worth of stock and I think it would be insane if AAPL were at $80 and we lost $40,000 – I’m very comfortable allocating a single allocation block to this trade but, in truth, as soon as AAPL is over $180, I’d really only feel the need to keep half an allocation block aside against a maybe $25,000 loss ($120) if things went terribly wrong.

And, of course, we’ll have hedges and usually we hedge with SQQQ so AAPL is well-protected.

Currently, SQQQ is at $25.50 with the Nasdaq at 13,800 so a 20% drop in the Nasdaq (AAPL would still be about $140) would pop SQQQ up 60% to $40.

The SQQQ 2025 $25s are $9 and the $40s are $7 so we can get $15 worth of protection for $2 – that’s pretty good. Still, I know I like to sell short-term calls so better to sell the 2025 $60 calls for $5 because those are very unlikely to be hit so, rather than let’s say, 200 of the 2025 $25/40 spreads at $2 ($40,000), we buy 300 of the 2025 $25/60 spreads at $4 ($120,000) and plan on selling 100 of the Sept $30s, which are now $2.40 ($24,000) for hopefully $4 ($40,000) – which is what they were last week.

If we do that on a regular basis, we’ll quickly work off the purchase price of the long spread and end up with free insurance!

We’re not doing any of this yet as we don’t have enough longs to require $450,000 worth of protection – but it’s nice to know it’s available and it’s always good to plan ahead.

Phil / Hedge

While you cashed out most of the portfolios, I still have mine including SQQQ & TZA hedging. With bearish SQQQ hedge, it’s bleeding with QQQ keep going up with no pull back on AI hype.

Long 300 Jan 2025 20 Calls (cost 14.57 now 10.37)
Long 350 Jan 2025 30 Calls (cost 14.78 now 7.40)
Short 350 Jan 2025 90 Calls (received 28.56 now 5.12)

My other long positions were Financials and REITs. I am worried about them long term though they are down after SVIB fiasco.

How do I repair this mess?

Thanks for your help.

It doesn’t seem bad since you had a net ($437,100 + $517,300 – $999,600 =) $45,200 credit on the spread and now it’s net ($311,100 + $259,000 – $179,200 =) $390,000 so the hedges are up $436,100.

I don’t know what’s up with your financial stocks but the hedges seem to be working. The $90s are miles out of the money so maybe something more like what I’m thinking about in my other comment. You need to make sure you are covering a solid 40% loss in your remaining financials (calculating $25 to $40 on SQQQ, $90 is nonsense.

I would cash in the SQQQ 2025 $20s for $311,100 and sell 150 of the Jan $40s for $3 ($45,000) as you can always roll them up and/or buy more longs but you might get 2 of those sales for $90,000 total and that would be $400,000 of the table – as much as if you cashed it all in now.

Then I would take a long, hard look at those financials and decide if they are worth the risk.

That’s the main reason we went to cash in the first place – we didn’t trust the Financials!

Phil -since we are back to building portfolios – when does PFE get interesting?

It is interesting, there are hundreds of interesting stocks but we’re going to take our time and build solid, nicely-diversified portfolios over time.

I like PFE at $36.77 but no one seems in a hurry to buy it after earnings.

https://charts2.finviz.com/chart.ashx?t=pfe%20%20\&p=w&s=y

As a new trade, I’d go with:

  • Sell 10 PFE Dec 2025 $35 puts for $4.20 ($4,200)
  • Buy 15 PFE Dec 2025 $35 calls for $5.80 ($8,700)
  • Sell 10 PFE 2025 $45 calls for $1.50 ($1,500)

That’s net $3,000 on the $15,000 spread so $12,000 (400%) of upside potential at $45 and the obligation to buy 1,000 shares at worst case $38. Ideally, the plan is to sell 5-10 short-term calls, like the Sept $40s, which are now 0.67 but but the $37.50s are $1.45 and that would be nice so, if the $40s get to $1.50, then I will sell at least 5 for $750 or maybe 10 for $1,500 – using 119 days or less. Our longs are good for 945 days – so we have plenty of time to work off that $3,000 outlay.

That does turn out to have a high enough likelihood of success to go into the Butterfly Portfolio!

To clarify, is that an official Butterfly Port trade or just an idea? Thx

Official!

 😀  So much fun to be portfolio building again!

Yes it is!

Just to be clear, is this the first in a new Butterfly portfolio? And what is the size of the portfolio?

Well PFE can’t be the first as we just made AAPL the first at 9:57, where we also noted the size.

Is there any other part of today I can look up for you or would you like to read the post and comments first?  😜 

Don’t take that tone with me young man. (OK, I did not read the fine print that it was butterfly as well as LTP).

Some would say it was in the LTP as well as the butterfly…

Oops, people are getting nervous ahead of Powell’s speech:

 🤓 Powell is speaking today at the “Perspectives on Monetary Policy” panel at the Thomas Laubach Research Conference the central bank is hosting in Washington, D.C. According to CNBC1, he is expected to discuss the Fed’s latest interest rate hike, which was announced on Wednesday, May 3, 2023. The Fed raised its benchmark rate by a quarter-point to roughly 5.1%, the highest level in 16 years, to combat high inflation that has been running above its 2% target for more than a year. The Fed also signaled that it may pause its rate-hike campaign in the near future, depending on the economic and financial conditions.

It is hard to predict exactly what Powell will say, but based on his previous statements and the Fed’s recent policy statement, I think he will likely say something along these lines:

  • He will reiterate that the Fed’s rate hikes are necessary and appropriate to bring inflation down to its 2% target over time, and that the Fed is prepared to adjust its policy as needed in response to incoming data and evolving risks.
  • He will acknowledge that the economy is facing some headwinds from supply chain disruptions, the banking turmoil and the debt ceiling standoff, and that these factors could slow down the pace of growth and recovery in the near term.
  • He will emphasize that the economy is still fundamentally strong and resilient, with solid job gains, rising wages, robust consumer spending and improving business investment, and that the Fed expects the economy to grow at a healthy rate in 2023 and beyond.
  • He will explain that the Fed’s decision to consider a pause in its rate-hike cycle does not mean that the Fed is done with tightening monetary policy, but rather that the Fed is taking a cautious and flexible approach to assess the effects of its previous actions and the changing economic conditions.
  • He will stress that the Fed’s policy decisions are not on a preset course or a predetermined schedule, but rather depend on the outlook for inflation and employment, as well as the balance of risks and uncertainties around that outlook.
  • He will reaffirm that the Fed is committed to its dual mandate of maximum employment and price stability, and that it will use all its tools and instruments to achieve its goals in a timely and effective manner.

Gold is up, Dollar is down and there’s a bit of equity selling.

I’m so proud of Shel-Bot!

Me – “So, given what we know about the factors the Fed takes into consideration when adjusting rates, let’s look at the data since their May 3rd meeting and consider which way they are being pressured to move at the June 14th meeting.”

 🤓 The Fed takes into consideration a wide range of economic data and indicators when adjusting rates, such as GDP growth, inflation, unemployment, consumer spending, business investment, trade balance, etc. The Fed also monitors the financial conditions and risks in the banking system and the global economy.

Since their May 3rd meeting, some of the data that the Fed may look at are:

  • The U.S. retail sales for April, which increased by 0.4%, slightly below the median forecast of 0.8%. The retail sales minus autos also increased by 0.4%, matching the median forecast1. This suggests that consumer spending, which accounts for about 70% of GDP, remained solid but moderated in April after a strong rebound in March.
  • The U.S. industrial production for April, which increased by 0.5%, above the median forecast of 0.1%. The capacity utilization also increased to 79.7%, matching the median forecast1. This indicates that the industrial sector, which includes manufacturing, mining and utilities, continued to recover from the pandemic-induced slump and supply chain disruptions.
  • The U.S. housing starts for April, which decreased by 9.5% to an annual rate of 1.40 million units, matching the median forecast. The building permits also decreased by 8.8% to an annual rate of 1.42 million units, slightly below the median forecast1. This shows that the housing market, which has been a bright spot in the economy, cooled off in April amid rising material costs and labor shortages.
  • The U.S. existing home sales for April, which decreased by 2.7% to an annual rate of 5.85 million units, below the median forecast of 6.07 million units2. This reflects that the demand for existing homes remained high but was constrained by low inventory and high prices.
  • The U.S. durable-goods orders for April, which increased by 1%, below the median forecast of 3.2%. The durable-goods orders minus transportation also increased by 1%, above the median forecast of -0.3%2. This reveals that the demand for long-lasting goods, such as cars, appliances and machinery, was mixed in April amid supply chain challenges and semiconductor shortages.
  • The U.S. personal income and spending for April, which decreased by 13.1% and increased by 0.5%, respectively3. The personal income drop was largely due to the fading impact of the stimulus checks that boosted income in March. The personal spending increase was driven by services spending as more people resumed social activities amid vaccination progress and reopening measures.
  • The U.S. PCE price index for April, which increased by 0.6% month-over-month and 3.6% year-over-year3. The core PCE price index, which excludes food and energy prices and is the Fed’s preferred measure of inflation, also increased by 0.7% month-over-month and 3.1% year-over-year3. These inflation readings were above the Fed’s 2% target and the highest since the early 1990s.
  • The U.S. trade balance for April, which showed a deficit of $68.9 billion, slightly lower than the revised deficit of $75 billion in March4. This means that the U.S. imported more goods and services than it exported in April, but at a narrower gap than in March.
  • The U.S. GDP growth for the first quarter of 2023 (second estimate), which was revised up to 1.2% from the advance estimate of 1.1%5. This revision reflected upward revisions to consumer spending and business investment that were partly offset by downward revisions to inventory investment and net exports.

Based on these data, I think the Fed is being pressured to move in both directions at the June 14th meeting:

  • On one hand, the Fed is being pressured to raise rates further to combat high inflation that has been persistently above its target and expectations. The Fed has said that it expects inflation to be transitory and to moderate as the economy recovers from the pandemic and supply chain issues are resolved, but some market participants and analysts are skeptical about this view and worry that inflation may become entrenched and destabilizing if left unchecked.
  • On the other hand, the Fed is being pressured to pause or slow down its rate hikes to support the economic recovery that has been uneven and facing some headwinds from the COVID-19 pandemic, especially in some sectors and regions that are still lagging behind or facing renewed outbreaks. The Fed has said that it will not overreact to temporary inflation spikes and that it will focus on achieving its dual mandate of maximum employment and price stability over time.

Therefore, I think it is a close call whether the Fed will raise rates or not at the June meeting, but I lean slightly towards a rate hike because I think the Fed will give more weight to inflation than growth at this stage of the recovery.

********************************

Now THAT is how you make good use of AI!

Hi Phil, what am I missing with DE, they killed it and raised.

They started 2021 at $250 and then $425 and back to $300 and then $450 in Dec and back to $400 this morning – people just might be taking profits.

Big earnings were expected – especially with all the talk about cyber tractors and such.

Phil-

New portfolio questions…

I thought you mentioned a 100K self-hedging portfolio a while back – did that get scrapped?

Also – will there be a new Money Talk portfolio? and if so can that be done with 50K (without portfolio margin)?

Thanks

Well, so far we have LTP, STP, Butterfly, Money Talk, $700/month and Income Portfolio – which is $150,000 and will be self-hedging. Already that seems like enough work that we should cash out…

Ok – I figured as much. What about the money talk? Can it be done realistically without PM?

Anything can be done without PM – just don’t sell many naked puts or calls. We take bull call spreads because we are bullish on the stock and THEN we see if we can make extra money selling short-term puts and calls. If you don’t have PM – you can’t sell the naked short-term puts and calls.

Man, SPWR is relentlessly grinding down. My old position with 2024 $30 puts got assigned yesterday. I basically resold 2x 2025 $20 puts (I’ll roll them until the sun burns out) but the long $10 calls with 1/2 cover are getting slaughtered.

I would hope to find a buyer at the $10 line. This is crazy.

Ruh-roh!

And now we know why they scheduled Powell for Friday but, so far, it’s not helping.

Jerome Powell said this spring’s banking-system stress could mean the Fed won’t have to raise interest rates as high as otherwise to slow the economy.

Wow, they couldn’t keep it together long enough for Powell to have an effect. You can tell they were just keeping up appearances until Powell gave a planned doveish address to soften the blow that there’s little chance of a debt agreement.

 🤓 Summary: Powell says banking stress could affect rate hikes

Fed Chair Jerome Powell said on Friday that the Fed may not have to raise interest rates as much as expected to combat inflation, because its emergency lending tools to ease banking sector strains also have a tightening effect on the economy. He said that the Fed’s policy decisions depend on the outlook for inflation and employment, as well as the balance of risks and uncertainties around that outlook. He also said that the Fed was committed to bringing inflation down to its 2% target, and that it could wait for more data before deciding on further rate increases.

Analysis: Powell signals caution and flexibility amid debt crisis

Powell’s speech suggests that he is cautious and flexible about the Fed’s interest rate path amid the looming debt crisis, which could trigger a default by the US government if Congress does not raise the debt ceiling by June 1. A default could have disastrous consequences for the US and global economy, such as a sharp rise in borrowing costs, a plunge in stock markets, a loss of confidence in the US dollar and a recession. Powell’s speech indicates that he is aware of these risks and that he is prepared to adjust the Fed’s policy as needed in response to incoming data and evolving conditions. He also signals that he is not overreacting to temporary inflation spikes caused by pandemic-related factors, such as supply chain disruptions and stimulus checks, and that he is focused on achieving the Fed’s dual mandate of maximum employment and price stability over time.

 🤓 Based on Powell’s speech and the available information, it seems that the June Fed meeting could be a close call between raising rates again or pausing the rate hike cycle. The Fed may consider the following factors in making its decision:

  • The inflation data for May, which will be released on June 13, the same day as the start of the Fed meeting. If inflation remains high or accelerates further, the Fed may feel more pressure to raise rates to bring it down to its 2% target. If inflation moderates or decelerates, the Fed may have more room to wait and see if it is transitory or persistent.
  • The employment data for May, which will be released on June 2. If unemployment rises or job growth slows, the Fed may be more inclined to pause rate hikes to support the labor market recovery. If unemployment falls or job growth accelerates, the Fed may be more confident that the economy is strong enough to withstand higher rates.
  • The financial market conditions and risks, especially related to the debt crisis. If Congress fails to raise the debt ceiling by June 1, the US government could default on its obligations, which could trigger a financial meltdown and a recession. The Fed may want to avoid raising rates in such a scenario, as it could exacerbate the economic and financial turmoil. Alternatively, if Congress reaches a deal to raise the debt ceiling before June 1, the Fed may have more leeway to raise rates without causing too much market disruption.
  • The economic outlook and uncertainty, both domestically and globally. The Fed may take into account the latest projections of GDP growth, inflation and unemployment for 2023 and beyond, as well as the balance of risks and uncertainties around that outlook. The Fed may also consider the impact of the Covid-19 pandemic, especially in some regions and sectors that are still lagging behind or facing renewed outbreaks. The Fed may also monitor the global economic developments and challenges, such as trade tensions, geopolitical conflicts and environmental issues.

Given these factors, I think it is possible that the Fed could raise rates by another 0.25 percentage point in June, if inflation remains high or rises further, unemployment stays low or falls further, Congress raises the debt ceiling before June 1, and the economic outlook remains positive and stable. However, I think it is also possible that the Fed could pause rate hikes in June, if inflation moderates or decelerates, unemployment rises or job growth slows, Congress fails to raise the debt ceiling by June 1, and the economic outlook worsens or becomes more uncertain.

Finally we can kidnap children again!



I should probably clarify that that’s sarcastic – in case I decide to run for office one day…  😬 

Though it doesn’t seem to affect Florida Republicans, does it?

Since the measure passed easily, looks like it actually helps to be pro-kidnapping in FL  😪 

PHIL/APPL
Your new spread has the 160 Put priced as Dec. 25 but calls for the Dec Put which is ~$6.30

I meant the Dec 2025 puts, not this Dec.

Every building I’m driving by has vacancy. Hartford Insurance getting rid of 50% of their space. CRE , when shit hits the fan, it’s going to be big. But nothing that can’t be papered over with a few trillion, am I right?

I’m not so sure it can, that’s what I’m worried about.

The lack of worry on this issue is scary.

Do you know what a 50% empty city looks like? Detroit!

 🤓 The office vacancy rates in Detroit were rising steadily before the collapse of the city in the 1980s, which was caused by the decline of the auto industry, the flight of businesses and residents to the suburbs, the rise of crime and corruption, and the fiscal mismanagement of the city government. According to the data from Detroit Free Press1, Newmark2 and Cushman & Wakefield3, the office vacancy rates in Detroit were:

  • 19.1% in Q1 1983, up from 17.9% in Q4 1982 and 15.2% in Q1 1982.
  • 21.5% in Q1 1982, up from 20.3% in Q4 1981 and 18.7% in Q1 1981.
  • 23.8% in Q1 1981, up from 22.6% in Q4 1980 and 20.9% in Q1 1980.
  • 25.4% in Q1 1980, up from 24.2% in Q4 1979 and 22.5% in Q1 1979.

The office vacancy rates in Detroit were at their highest level since the Great Depression, when they were around 30%, according to Detroit Free Press1. The increase in office vacancies was driven by weak demand for office space from various sectors, such as automotive, manufacturing, banking and retail, as well as excess supply of new office construction, according to Newmark2 and Cushman & Wakefield3.

However, the office market in Detroit was further devastated by the collapse of the city in the late 1980s, which led to a massive exodus of businesses and workers, a surge in defaults and foreclosures, a loss of investor confidence and a deterioration of public services and infrastructure. The office vacancy rates in Detroit soared to over 50% by the end of the decade, according to estimates by Moody’s Analytics.

Fortunately, we can now actually make RoboCops!

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Don’t get me started on Detroit, Flint, or the state government. Those turds brought us a major Legionnaire’s disease outbreak, lead poisoning in Flint, and complete lying and denial at the city, county, and state level, all to cut costs and make bucks for themselves, and because both Flint and Detroit are mostly where Black people live, so who cares: https://www.nejm.org/doi/full/10.1056/NEJMp1601013#t=article, https://www.wikiwand.com/en/Detroit_Health_Department

SPWR $9.50 – down 10% today! RUN taking a beating too.

Apparently, GOP trying to cancel solar subsidies in Debt talks was part of the reason the talks broke up.

Yep, GOP (Greedy Oil Party) want to kill all green energy

It’s like carriage makers and horse ranchers and blacksmiths all banding together to prevent the auto industry from happening. You can try to stop Congress from funding roads or permitting fuel stations for only so long but the cars keep coming.

Even in recent history, old-line businesses have tried to stop progress via politics like Cable and Telco vs Net Neutrality, Taxis vs Uber, Hotels vs AirBnB, etc. The fact is, oil companies have been fighting solar for decades but now it’s going to hit them hard and fast instead of slow and steady.

lol .. totally agree Phil. I see the Saudi’s installing 100million panel’s, installing cables export the energy to Europe and

Phil/SPWR: What is your view on that?

I think Solar is inevitable. The economics now make it work so it can’t be stopped – just delayed. SPWR makes money, they don’t lose it. They are not going to go out of business just because a few subsidies go away – they haven’t had them before and they grew to own 10% of the market.

Below is a rundown of major earnings due in the week of May 22 to May 26:

Monday, May 22

Ryanair (RYAAY)

Ryanair (RYAAY) is due to provide its full-year update on Monday, following shortly after a massive order of aircraft from Boeing. The Irish airline said it plans to buy at least 150 of Boeing’s (BA) 737-10 Max jetliners, along with an option for 150 more. While the low-cost carrier has notched double-digit traffic growth heading into the warmer months of the year, staffing concerns and worker strikes have caused its summer schedule to come under scrutiny.

Also reporting: Zoom Video Communications (ZM), ZIM Integrated Shipping (ZIM), HEICO Corporation (HEI), PetMed Express (PETS) and Niu Technologies (NIU)

Tuesday, May 23

Lowe’s Companies (LOW)

Just a week after a downbeat forecast from rival Home Depot (HD) dragged the stock down, Lowe’s Companies (LOW) is due to provide its own quarterly update before the opening bell on Tuesday. Lowe’s (LOW) has significantly outperformed Home Depot in 2023, rising over 5% in contrast to a nearly 7% decline for its Atlanta-based competitor. The stock has become a favorite among analysts ahead of the Q1 print as well, with both Jefferies and Wells Fargo adding the name to “top pick” lists.

“We have a favorable outlook on home improvement demand based on housing and demographics factors that we see bolstering R&R activity. Recent meetings with LOW mgmt. suggested company initiatives are poised to deliver near flat comps Y/Y. Shares trade at a 30% P/E discount to peers, and our ’24 EPS forecast is ahead of consensus,” Jefferies wrote in a recent note.

  • Consensus EPS Estimates: $3.47
  • Consensus Revenue Estimates: $21.78B
  • Earnings Insight: Lowe’s has beaten EPS estimates in 8 consecutive quarters and revenue expectations in 5 of those reports

Also reporting: Intuit (INTU), Palo Alto Networks (PANW), AutoZone (AZO), Agilent Technologies (A), Kroger (KR), Best Buy (BBY), DICK’S Sporting Goods (DKS) BJ’s Wholesale Club Holdings (BJ), V.F. Corporation (VFC), Williams-Sonoma (WSM), Toll Brothers (TOL), Manchester United (MANU), Urban Outfitters (URBN), and Cracker Barrel Old Country Store (CBRL)

Wednesday, May 24

NVIDIA (NVDA)

Nvidia (NVDA) is due to report its first quarter earnings results after the closing bell on Wednesday. Shares of the California-based chip maker have recorded a 100% gain to start 2023, rising alongside spiking interest in AI advancements. From its October 2022 low, the stock has nearly tripled. The Jensen Huang-led company was also recently boosted by the announcement of additional details on its new low-priced GPUs. EPS and revenue estimates have been revised upward a net of 15 and 7 times, respectively, in the 90 days ahead of the earnings announcement.

The consensus sell-side rating on the stock remains a Buy. However, both Seeking Alpha analysts and maintain a Hold rating, citing an untenable valuation. Victor Dergunov recently warned of a coming post-earnings plunge due to the red-hot run into the print.

  • Consensus EPS Estimates: $0.91
  • Consensus Revenue Estimates: $6.52B
  • Earnings Insight: Nvidia has beaten EPS estimates in 6 of the past 8 quarters, rising above revenue expectations in 100% of those reports.

Also reporting: Abercrombie & Fitch (ANF), Analog Devices (ADI), Bank of Montreal (BMO), Snowflake (SNOW), Splunk (SPLK), U-Haul Holding Company (UHAL), Xpeng Inc. (XPEV), UiPath (PATH), Futu Holdings (FUTU), Nutanix (NTNX) e.l.f. Beauty (ELF), Petco Health and Wellness Company (WOOF), American Eagle Outfitters (AEO), Kohl’s Corporation (KSS)

Thursday, May 25

Costco (COST)

Washington-based Costco Wholesale Corp. (COST) is set to update investors on its fiscal third quarter results after the closing bell on Thursday. The company recently indicated sales rose 3% to $17.85B for April and comparable sales were up 1.4% during the month, led by international growth. The sell-side consensus on the stock remains a Buy, with William Blair joining the bull camp in April.

Equity analyst Philip Blee said that the company maintains a “best-in-class private-label brand” and an engaged membership base that would likely not balk at a modest membership price increase.“Our pricing analysis implies the average product savings delivers an 11-times return on the annual membership fee,” Blee wrote. “Our proprietary survey suggests the average consumer ranks Costco first on best product price, quality, brand trust, and experience versus its peers.”

  • Consensus EPS Estimates: $3.33
  • Consensus Revenue Estimates: $54.66B
  • Earnings Insight: Costco has beaten EPS expectations in 7 of the past 8 quarters, missing revenue expectations twice in that span

The Toronto-Dominion Bank (TD)

Canadian bank Toronto-Dominion (TD) will report its fiscal second quarter results in premarket hours on Thursday. The report comes shortly after the collapse of talks to take over First Horizon (FHN). The bank initially disclosed in early March that it didn’t expect to receive regulatory approval in time to complete its $13.4B acquisition of First Horizon. By early May, the deal had officially fallen through. The Seeking Alpha Quant Ratings system recently upgraded the stock to Buy as the acquisition fell through, highlighting improving valuation and momentum dynamics.

  • Consensus EPS Estimates: $1.55
  • Consensus Revenue Estimates: $9.18B
  • Earnings Insight: TD Bank has beaten EPS and revenue expectations in 8 consecutive quarters.

Also reporting: Royal Bank of Canada (RY), Medtronic (MDT), NetEase (NTES), Workday (WDAY), Autodesk (ADSK), Marvell Technology (MRVL), Dollar Tree (DLTR), Ulta Beauty (ULTA), Deckers Outdoor Corporation (DECK), Burlington Stores (BURL), Ralph Lauren Corporation (RL), Weibo Corporation (WB), The Gap (GPS), and Lion’s Gate Entertainment (LGF.A)

Friday, May 26

Big Lots (BIG)

Big Lots (BIG) is set to post its first quarter earnings update on Friday before the opening bell. The heavily shorted stock has slumped over 70% in the past year, plummeting 19% in just the month ahead of the print. While the Seeking Alpha Quant Ratings system has rated the stock a Sell for much of the past 6 months, analysts maintain a consensus Hold rating.

That said, Piper Sandler is the latest to join the bear camp ahead of the earnings report, citing slowing furniture and mattress sales, as well as free cash flow concerns for the retailer.

“We are downgrading shares of BIG to Underweight and lowering our PT to $7 based on our industry view that demand for both home furnishings and mattresses has deteriorated since March and will likely remain challenged in the months ahead,” the downgrade authored in late April explained. “With continued weakness in sales FCF could go negative and put the dividend at risk.”

  • Consensus EPS Estimates: $-1.57
  • Consensus Revenue Estimates: $1.19B
  • Earnings Insight: Big Lots has beaten EPS and revenue estimates in 4 of the past 8 quarters.

Also reporting: The Buckle (BKE) and Booz Allen Hamilton Holding (BAH)

NO plans to resume discussions on Debt Ceiling.

Powell says banking system stress could influence the Fed, who just raised rates on the 3rd so is he saying there is currently more stress they are worried about? He did not reassure anyone this morning.

This air-bag recall is supposed to be 6.8M cars and figure $200/car is $1.4Bn of unplanned expenses for the auto industry. That’s going to sting. There’s a much higher number floating too:

Air-bag inflators that regulators have warned could explode during a crash and spray the car’s interior with metal shrapnel are in at least 50 different vehicle models spanning 15 automotive brands, according to records filed as part of a federal safety-defect investigation. 
The Wall Street Journal identified at least 6.8 million vehicles that carmakers have said were built with the potentially dangerous air-bag part. To tally the figure, the Journal reviewed documents that automakers submitted to regulators during the government’s eight-year probe of the matter. 

The total number of vehicles affected is expected to be much larger, with the National Highway Traffic Safety Administration last week publicly demanding that parts maker ARC Automotive recall a total of 67 million inflators, devices that activate during a collision to rapidly fill the air bag like a balloon. 

Takata had a recall like this back in 2014 and it bankrupted them. So far, 22 people have died and 400 have been injured and they are freaking out. Seems very arbitrary compared to all the other stuff that kills us…

Inflators used in driver- and passenger-side air bags are prone to exploding when deployed, which can send metal fragments into the vehicle cabin with the potential to seriously injure or kill the driver or passenger, the safety agency said.

In its letter Friday, NHTSA cited a potential problem in how the metal inflators were welded in manufacturing. That potential flaw can result in too much pressure inside the inflator and cause it to rupture, the agency said.

 🤓 A list of the top 10 products that kill or injure the most people in the U.S. based on the data I found. Here is the list:

I don’t know if we should consider homicides a “defect” in guns – it’s kind of their primary use.

I would like to delve into those bed numbers – seems like a lot. Would not have thought mattresses are deadlier than sofas – going to redefine which way I turn next time I’m cornered by a furniture gang…

OMG and I was cutting up Maddie’s steak when she was still in her high chair and she reached out to grab the steak from under my knife as I was slicing – I almost had a heart attack! I stopped the blade less than a centimeter from her finger.

Don’t even get me started on soap! At home I have a system but hotels can be deadly.

A disappointing finish but it didn’t ruin things.

Have a great weekend, folks!

  • Phil

Hi Phil, is the Butterfly portfolio self hedging too?