“No, I would not give you false hope
On this strange and mournful day
But the mother and child reunion
Is only a motion away” – Paul Simon
THAT is the “deal” the GOP have put forward that is exciting Wall Street this morning. And why wouldn’t it? Our beloved Defense Contractors love both getting more money and hiding their profits from the Government – it’s a win win! As we discussed yesterday, the ENTIRE cause of our $32Tn deficit is 40 years of not collecting realistic amounts of money from our Corporate Overlords and this “budget” assures that will continue until the Earth Melts in 2050.
It’s a 3-day weekend and, after that, they have 2 whole days to actually finalize a deal and stop the Government from shutting down so you’ll have to forgive me if I don’t jump on the celebratory bandwagon just yet. On Tuesday we discussed our hedges and they are easy fills this morning with the Nasdaq 100 back over 14,000 – caveat emptor!
The Nasdaq WAS running out of gas at 13,000 but now NVDA has given analysts an excuse to boost targets on so many companies – even though most of them are SPENDING money on AI – not MAKING money selling chips. We’re happy to just go with the flow, the hedges are there to protect the gains in our longs and already, after just one week, our longs are doing well in our new Member Portfolios:
- Income Portfolio – Up 3%
- $700/Month Portfolio – Up 5.5%
- Butterfly Portfolio – Up 1%
- Long-Term Portfolio – Down 2.6% (FL killed us)
- Money Talk Portfolio – Up 228.5% (that one is from Nov, 2019)
- Short-Term Portfolio – Up 0.4%
And we still have about 80% CASH!!! on the sidelines, ready to buy more if this rally holds up past the debt deadline next Wednesday. Until then, it’s going to be a ride ride as we’re heading full speed towards that fiscal cliff. BUYBUYBUY?
From the Fed Minutes and Fed speakers this week, we have learned that there will be NO rate cuts in 2023 – unless something disastrous happens to the economy, of course. The minutes emphasized that the post-meeting statement should NOT be interpreted as signaling rate decreases or ruling out further rate increases. Powell also reiterated this sentiment during the question and answer session, indicating that rate cuts were not on the table.
That sent the markets lower until the fact that NVDA is selling a lot of AI chips reversed everything? How does that make sense? Doesn’t a stronger economy mean the Fed will be more likely to hike? How does NVDA selling chips help GM and F sell cars? How does it stop Commercial Real Estate from collapsing?
Speaking of which, here’s a good article by Avi Gilburt on big bank exposure to CRE highlighting PNC. Essentially, what the author is saying is that PNC Bank is facing significant stability issues that could pose risks in the future. The bank has a large exposure to commercial and industrial lending, with commercial loans accounting for almost 70% of its total credit portfolio. This concentration makes PNC vulnerable to changes in the macroeconomic environment, as a severe recession could lead to a deterioration in asset quality and higher charge-off and non-performing loan ratios.
Furthermore, PNC has a high share of uninsured commercial deposits, which has been a contributing factor in the failures of other banks in the past. The bank has also seen a notable increase in expensive borrowings from the Federal Home Loan Bank, suggesting potential liquidity issues. Another concern highlighted by the author is PNC’s longer-duration securities book, which exposes the bank to duration mismatch risks.
Additionally, PNC Bank’s operating efficiency is weaker compared to its peers, and its capital adequacy ratios appear relatively low when adjusted for negative Accumulated Other Comprehensive Income. These factors, combined with the bank’s exposure to commercial lending and potential liquidity challenges, raise doubts about its stability in a systemic crisis scenario.
The banking crisis isn’t over – it just got pushed back with a quick $2Tn infusion by the FDIC and the Federal Reserve in March but it seems traders have already forgotten that but here’s $199Bn worth of uninsured depots in one bank and we already KNOW CRE is in huge amounts of trouble. Kicking a can down the road does not mean the can no longer exists…
Well, if no one feels like worrying about it why should we? We know how to make money in whatever kind of market. In fact, yesterday, in our Live Member Chat Room, I called for a long on Gasoline, which always goes up into Memorial Day Weekend, saying:
/RBN23 (July) at $2.52 and I think playing for a bounce at $2.50 will be fun – with VERY TIGHT STOP below that line. That captures this weekend and July 4th (and Juneteenth!).
As you can see, that’s going very nicely as we’re already testing $2.60 on the contract and that’s good for about $7,500 on 2 contracts so we’re going to lock that in here by taking it off the table as $7,500 should be enough to pay for the good stuff at the barbeque this weekend, right?
Have a great holiday!
Markets are open but looks like PSW nation took off 😀
I’d be gone too! We have no particular risk in either direction.
Going to be a very low-volume day as people cut out early for the holidays – I’ll be out of here around 2 myself.
That being the case, it’s very easy to spike the market in the morning and really, we don’t care as we have enough bullish positions to offset our hedging losses.
Personal Income was up 0.4% vs. 0.3% expected and 0.3% in March. That means there’s still a lot of wage pressure on companies. On the other hand, Personal Spending went crazy at 0.8% vs 0.4% expected so strong consumer (or insane consumer?) – we’ll have to look more closely later.
PCE Prices were up 0.4% vs 0.3% expected and the core and headline were the same but headline was up 0.1% in March so a big jump there means inflation is still OUT OF CONTROL but traders seem perfectly fine with it this morning (all 3 of them).
Durable Goods came in at 1.1% vs -1.3% expected but still down from 3.3% in March and Ex-Transportation we’re down 0.2% vs down 0.3% expected – so nothing to party about there either.
Consumer Sentiment was expected to be a sad 58 (57.7 in April) and it’s 59.2 – better than expected but still awful: Consumer sentiment dims in May, but not as much as expected
Markets want that blow off top.
• Will The U.S. Economy Pull Off a ‘Soft Landing’? In the ’70s and ’80s, we thought that you needed to raise unemployment to fight inflation. Next, we thought that cooling down inflation would require higher unemployment. In the early ’70s, economists thought that price controls could slow inflation. …and were surprised when unemployment stayed low. In the late ’80s, we thought that a good inflation target was 4 percent. Then we decided that a better target would be 2 percent.. (New York Times)
• JPMorgan’s US debt default Q&A: JPMorgan late on Friday published a fantastic Q&A that explores most of the technical issues surrounding a possible US default. While the bank’s analysts stress that they “fully expect a timely resolution of the debt ceiling constraints”, it noted that clients naturally had a lot of questions. (Financial Times) see also Even Flirting With U.S. Default Takes Economic: Toll Financial markets are still betting that Congress and the White House will strike a deal. But the uncertainty alone is having consequences. (New York Times)
• Why Are Economists Still Uncertain About the Effects of Monetary Policy? Despite decades of research, there remains substantial uncertainty about the quantitative effects of monetary policy. Different models produce conflicting predictions, and these predictions lack precision. This article discusses some reasons for these issues. In addition to the relative lack of data, the structure of the economy has continued to evolve, posing challenges for empirical macroeconomic analysis more generally. Economists have been confronting these challenges by developing tools to jointly consider a range of models and continuing to seek new sources of data. (Federal Reserve Bank of Richmond)
• Debt-Ceiling Fight Sends Investors Hunting for New Havens: Traders worried about a potential U.S. default are swapping their go-to safe haven for the bonds of America’s top-rated companies. Just days or weeks before the government faces a possible funding shortfall, investors are shunning U.S. Treasury bills that will mature over the next several months while paying a premium to buy debt issued by Microsoft and Johnson & Johnson, two of the highest-rated U.S. companies. (Wall Street Journal)
• Decoupling is just going to happen: Chinese policy and geopolitical risk are doing a lot of the work here. (Noahpinion)
• Foresight: The mental talent that shaped the world: When humanity acquired the ability to imagine the future, it changed the trajectory of our species. But in the age of the Anthropocene, we need to harness this mental skill now more than ever, say the scientists Thomas Suddendorf, Jon Redshaw and Adam Bulley. (BBC)
• The Biggest Hedge Funds Take the Lead—and Pocket the Most Investments: Amid an attrition trend and a performance lag, the smaller operators are closing. (Chief Investment Officer)
• Carl Icahn Is $15 Billion Poorer After Hunter Becomes the Hunted: Tucked away in South Florida’s Billionaire Bunker, The Lone Wolf of Wall Street is ready for a fight after Hindenburg Research’s report. “If you’re going to be bothered by this, you shouldn’t be in this business,” he says. (Bloomberg) see also Bill Ackman Says Icahn ‘Somewhat’ Like Archegos as Stock Plunges Anew: Short-seller report said Icahn Enterprises shares overvalued; Icahn CEO says he has ‘full confidence’ in firm’s financials (Bloomberg)
• The little-known unintended consequence of recycling plastics: Breaking down plastics can generate polluting microplastics that wind up in water or the air, one study finds. (Washington Post)
• High-Tech Farm Startups Are Laid Low by Financing Drought: Pests Ventures represent latest attempts by tech to transform established industries. (Wall Street Journal)
• What US Cities Pay the Most (and Least) for Everyday Jobs: From accountants to nurses to data scientists, the same job can deliver about 50% more pay if you’re willing and able to relocate. (Bloomberg) see also How some people get away with doing nothing at work All hail the jobless employed. (Vox)
• Start-Ups Bring Silicon Valley Ethos to a Lumbering Military-Industrial Complex: Small, fast-moving U.S. tech firms are using the war in Ukraine to demonstrate a new generation of military systems but face the challenge of selling them to a risk-averse Defense Department. (New York Times)
• A Model of Influencer Economy: With the rise of social media and streaming platforms, firms and brand-owners increasingly depend on influencers to attract consumers, who care about both common product quality and consumer-influencer interaction. Sellers thus compete in both influencer and product markets. As outreach and distribution technologies improve, influencer payoffs and income inequality change non-monotonically. More powerful influencers sell better-quality products, but pluralism in style mitigates market concentration by effectively differentiating consumer experience. (National Bureau of Economic Research)
• How Will We Know When Self-Driving Cars Are Safe? When They Can Handle the World’s Worst Drivers: Call it the Mad Max driving test, a gantlet only a Hollywood director—or a mild-mannered engineer—could dream up. (Wall Street Journal)
• How Bud Light Blew It: With one blunder after another, the brewing giant behind the brand became a case study in how not to handle a culture-war storm (Wall Street Journal)
• The big idea: why colour is in the eye of the beholder: There is no such thing as color, only the people who perceive it. We might think the sky is blue and trees are green, but the truth is rather stranger. (The Guardian)
• What Do a Falling Apple and an Orbiting Moon Have in Common? Isaac Newton connected the two motions in a way that revolutionized physics and made space travel possible. (Wired)
4,200 again on the S&P – we’ll see if those sellers are still there but probably in the Hamptons by now.
Still not back to 1,800 on the RUT but Nas over 14,200 and Dow 33,100 – all looking good.
And this is with a rising Dollar!
Good thing we took the money and ran on /RB.
Keeps going higher – aren’t weather reports useful?
Moving back to Coffee now.
Nice long call on /SI too yesterday. It will really blast higher if the Dollar pulls back.
What a week!
Did I say 2? Lunch at the beach is looking very tempting at the moment…
I cant see us making any other moves today ahead of the long weekend. Go enjoy and the time before you get to the really hot days. I was in West Palm a couple of weeks ago and it was absolutely beautiful weather. It was funny to see all the car carriers moving the vehicles back north for the snow birds,
Yes, the annual migration.
Such a pleasure down here in the summer (unless it’s too hot). 100s of great, empty restaurants and clubs – everything is on sale…
What city are you in?
Delray Beach – right below West Palm.
Oh rats, I thought you were in Boca. Last December I had a birthday party at Casa L’Acqua in Del Ray. I would have invited you, though it was my sister who had made all the arrangements. I was staying in Ft. Lauderdale so kinda a schlep. This coming Dec. I’ll be in South Beach but just for a few days prior to a cruise.
I like that place.
BIG was on our watchlist and they had another bad quarter. Stock down 13% today. On the other hand today traders are selling tons of AMZN June 2024 $110 puts… 45,000 so far
Big is one I think I want to remove, unfortunately. They are simply not getting themselves together.
As to AMZN, AI is going to screw them over because what is AMZN other than a way to find everything on the web? Once someone hooks up AI to sellers directly – why give 1/3 of your income to AMZN? Same on the consumer side – they are not at all cheap anymore.
I just ordered a bunch of stuff from CostCo in Instacart and you don’t need to be a member to do that – that’s a nice loophole.
AI is going to cut out a lot of middleman businesses as it grows. My AI will call your AI and make all the arrangements.
For what it’s worth:
Potential Debt-Ceiling Deal Starts to Take Shape
Ahead of the June 1 deadline, negotiators are considering more money for the military and cuts to IRS funding, though nothing has been finalized.21 min ago6 min read
Impasse Could Imperil Payments for Medicare, Medicaid, ACA
Municipal Bond Issuers on Edge
How a Crisis Could Play Out for Wall Street
White House and G.O.P. Close In on Deal to Raise Debt Limit
Negotiators were discussing a plan that would allow Republicans to point to spending reductions and Democrats to say they had protected against large cuts.
Debt: The Bad, the Weak and the Ugly
So the solution to our debt ceiling is ending up as “Spend more and collect less” – BRILLIANT!!!
More good news if you revel in the suffering of others:
States Have Kicked Hundreds of Thousands Off Medicaid
Since a pandemic-era policy preserving access to the program expired, hundreds of thousands have lost coverage — even some who still qualify.
The Case of Six Lawyers Versus Tens of Millions of Struggling Americans
A little-known pandemic-era tax credit has become a magnet for fraud.
Inflation Inched Higher in April, Reflecting Challenge for the Fed
The Fed’s preferred gauge, the Personal Consumption Expenditures index, climbed 4.4 percent in April from a year earlier, a slight increase from March.
Mar-a-Lago Worker Provided Prosecutors New Details in Trump Documents Case
Indiana Reprimands Doctor Who Provided Abortion to 10-Year-Old Rape Victim
More Teenagers Coming to School High, N.Y.C. Teachers Say
Nasdaq at the 2.5% rule – 14,300!
So it’s a run from 14,000 to 14,350 and the pulbacks are 70 points to 14,280 (weak retrace) and 14,210 (strong retrace).
Now 15,000 comes into play and that run is from 12,000 so the lines on this run are 600 points (12,600 weak bounce), 13,200, 13,800 and 14,400 (weak retrace).
We didn’t nail any of those but it tells us what to look for so we’ll call the run we’re having 13,200-13,800 and this zone is silly but 13,800 to 14,400 is 600 points and that’s 120-point zones of 13,920 (weak bounce if 13,800 holds as a new floor) 14,040, 14,160 and 14,280 (weak retrace)
NOW we have good lines to see what crosses and 14,280 comes up in both series so that’s our short-term key support/resistance lines.
After all that, I just took my first short at 14,330 – didn’t feel like waiting.
In case you’re bored while waiting till 2, lol:
I know we closed out all the positions, but would you have a suggestion to make it less bad, do I just wait til expiry and cross my fingers, or do I just need to take the loss? I’m thinking rolling and selling some calls? TIA
Option Qty Cost/share
TD Jan 19 2024 60.0 Call 6 11.747
TD Jan 19 2024 70.0 Put -1 7.813
At least now you know why we closed everything – you never know what’s going to tank.
So you have the the very aggressive Jan $60 calls with no cover and the $70 puts and TD is at $57.50 – ouch!
The $60s are $3 and you can roll them to the 2025 $50s at $10.50 and cover with the 2025 $60s at $5 so net $5.50 will cost you $2.50 roll down $7.50 in the money.
That leaves you with the Jan $70 puts, which are now $13 and the 2025 $65 puts are $10 so you can do a 1.3x roll there for no cash out of pocket.
That would leave you at net $11.75-7.81+$2.50 = $6.44 on the $10 spread so there’s still about 50% upside potential and that beats the huge loss you’re looking at now but it also ties up the cash.
Thanks again, and have a good long weekend!
idiots to get your thoughts on a 2024 $25/$50 BCS for SQQQ?
it costs about $2.6 right now but seems to yield a good bit of protection for the next year?
“Idiots to get your thoughts?”
Sure I like it but be very aware the net delta is just 0.55/0.26 = 0.29 so you’ll only gain 0.29/$1 move up in SQQQ so, at $35, you’d only be up around $3 – despite being $10 in the money.
That’s all fine as long as you are using it as a real hedge, where your main intention is to ride out a dip with your longs, knowing that, IF the dip lasts into Jan, THEN you will get your whole $10. What it will not do is balance your portfolio and make it look pretty in a downturn.
Also, even though it is “just” $2.60, it’s $2.60 that will expire in 238 days and it’s out of the money so you will lose 0.01/day unless the Nas starts pulling back.
The 2025 $25/50 spread is $7.50/$5.20 so $2.30 and it decays 1/3 as fast (602 days) and the delta is 65/45 – not that much worse.
i keep scrolling by your post, and I’m laughing every time. i know it was some kind of text prediction error or something, but I just love it. i think we should all start our posts thusly: “Idiots, your thoughts?”
Things are still holding up but volume is low so it’s meaningless.
One more reason not to get cocky:
This time will not likely be different.
i can’t believe broadcom went up 11% today.