Happy Easter/Passover!
by phil - April 2nd, 2021 8:33 am
Happy holiday!
The markets are closed this morning but, for some reason, they are still releasing the Non-Farm Payroll Report, which is usually a market-mover. It's 8:30 now and the numbers are bigger than expected with 916,000 new jobs added in Biden's second full month as President and that's well over expectations and, more importantly, Unemployment is down to 6%. The Futures are open and the Dow is blasting higher and the other indexes are likely to follow
“There’s a seismic shift going on in the U.S. economy,” said Beth Ann Bovino, a Ph.D. economist at S&P Global. The confluence of additional federal stimulus, growing consumer confidence and the feeling that the pandemic is close to abating - despite rising infections in recent weeks - is propelling economic growth and hiring, she said.
Stronger growth should return jobs to industries with the deepest losses during the pandemic, such as restaurants, stores and hotels, and support additional job growth at warehouses, delivery services and manufacturing. Job growth could also pick up in hard-hit cities in the Northeast and California, and in tourist hotbeds such as Las Vegas and Orlando.
There are still about two million fewer food-service jobs this year in the U.S. than before the pandemic-related shutdowns that began in March 2020. The industry accounts for one in five total jobs lost in the past year, suffering the most pandemic-related losses. Those jobs can come back quickly once we are vaccinated and more people with jobs means more people who can afford to eat out – so the cycle tends to feed itself.
Another major factor in favor of a better Q2 is our very successful vaccination roll-out in the US with an average of 2.9M doses PER DAY being given out. That is 87M more in April and 90M more in May – only if we don't speed up. Biden is miles ahead of his vaccine rollout schedule after 72 days on the job. 30% of the poulation has gotten at least on dose and I'm getting mine tomorrow! My appointment is at 11:36 am, so they have started to get very exact and efficient about it and that's helping to…
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Thrilling Thursday – Learning to Love the Stimulus
by phil - April 1st, 2021 8:31 am
Up and up we go.
I have to tell you, Biden's "restrained" $2.3Tn (it gets bigger by the hour) Infrastructure Bill really hit the sweet spot for the US economy. It's "only" about $300Bn a year but it will actuall be paid for by our beloved Corporate Citizens, who will pay 7% more taxes than they aren't paying now. THAT is how you grow an economy properly and this year, we'll grow 6%, to $22Tn and let's say we grow "just" 4% for the next 7 years, that's $29Tn and if we "only" add $1Tn of debt each year, that would "only" be $35Tn.
35/29 is 120% Debt to GDP vs our current 28/20.5 = 136% so, IN THEORY, Biden's current plan is going to shrink our Debt/GDP ration while growing the economy 25%, bringing tax collections up by about $1Tn per year – enough to cover the inflationary boost caused by the rising GDP.
As long as we have no emergencies and nothing else needs to be spent – things should be getting better… Unfortunately, that's already baked into the marekt forecasts so it's a fragile rally but a rally nonetheless – as long as all the news stays good. The news stays good for Pfizer, who have found their vaccine remains 91.3% effective after 6 months from their Phase 3 Trial and that's good news for all of us but mostly for PFE, who will have to give us Covid booster shots the way we get flu shots – annually.
Our PFE trade is "only" up $1,745 (2,181%) since our net $80 entry back on October 7th (see me discussing the trade on BNN's Money Talk) and it's a $7,000 spread that's almost at goal ($37) but you can still buy it for net $1,525 – they are simply giving this money away! That's a $5,475 (359%) profit potential from here if PFE can simply get over $37 by Jan of 2023. Those are the kind of very simple trades we like to have in our Money Talk Portfolio, which is up 50% since that October show:
The only move we made since…
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Want More Wednesday? How About Another $2,000,000,000,000?!?
by phil - March 31st, 2021 8:22 am
MORE FREE MONEY!!!
That's right, we've barely had time to spend our last $1,400 and already Biden is tossing another $2Tn onto the fire for "Infrastructure" but I have to agree with Fox on this one as most of it is not about Infrstructure at all but, unlike Fox, I will reserve judgment until the Bill is out later this afternoon.
Biden is looking to roll back the Corporate Tax cuts which led to a 20% jump in the market so, logically, won't the market drop 20% when the tax cuts get taken away? We'll see. And, to be fair, this isn't a quickie bill that pays out next week – this is an 8-year plan for spending that is being paid for by increasing Corporate Taxes for 15 years so, in the coming 8 years, we'll only go another $1Tn into debt on this plan – unless we elect another Republican President – then, as usual, the sky is the limit for debt spending and tax cuts.
Biden’s proposal includes $621Bn to modernize transportation infrastructure, $400Bn to help care for the aging and those with disabilities, $300Bn to boost the manufacturing industry, $213Bn on retrofitting and building affordable housing and $100Bn to expand broadband access, among other investments. (That Bastard!) The plan calls for modernizing 20,000 miles of roadway; building 500,000 electric-vehicle charging stations; replacing the country’s existing lead pipes and service lines; repairing aging schools; expanding home care for the elderly and disabled; and investing Billions of dollars in domestic semiconductor manufacturing or, according to Fox, it's Hitler, Mussilini and Stalin rolled into one!
Biden also proposes establishing a standard mandating that increasing portions of the country’s electricity be generated from low-carbon sources, with a goal of eliminating carbon emissions from the power grid by 2035. The proposal requires congressional approval. Mr. Biden’s plan also stresses equity in access to jobs and transportation options, including $20 billion for a new program that would reconnect neighborhoods cut off by past transportation investments as well as research funding for historically black colleges and universities. The plan calls for a national lab to be affiliated with an HBCU that will focus on climate. Will nobody stop this mad man?
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Toppy Tuesday – S&P 3,950 Again
by phil - March 30th, 2021 8:34 am
Commencing year number 59.
It was my Birthday yesterday so I've been contemplating stuff. For one thing, if I had invested $1 per day in the stock market since the day I was born, today I would have $1,335,799.45. You know how they tell you to sponsor a kid in Africa for $1/day – why not sponsor your own grandchildren and make sure they will be Millionaires (inflation-adjusted) when they get to your age? A shortcut for that is to invest the first $3,650 to cover their first 10 years the day they are born and then add another $365 each birthday – you'll actually come out around $3M at 60.
That's all it takes to ensure your family's financial security and, if you pick nice dividend-paying stocks like AT&T (T), Pfizer (PFE), Walgreens (WBA), Coca-Cola (KO), IBM (IBM), Cisco (CSCO), 3M (MMM), Proctor and Gamble (PG), JP Morgan (JPM) and McDonalds (MCD) – you'll be nicely divesified in Dow components.
Reinvesting the dividends is key, by the way. Without doing that, you'd be at $400,000!
If your kids, like mine, are already in college and you missed the first 20 years of $1/day, don't despair, you can catch up by calculating how much money there should be using a Compound Rate Calculator and you can see where you should be after so many years by starting with $365 and adding $365 per year for X amount of years. So, at 20, my kids should have $27,142.60 – if they had saved nothing, that's what we'd need to catch up. $27,142.60 is the cost of not putting in $1 per day for 20 years ($7,300).
So, Advice #1 from the old man is stop building your wealth so you can "leave it to your children and grandchildren" and start actually doing something for them NOW. Setting up an account for them and letting them see how savings can make their money grow over the years is a lot more valuable than wrting them a lump-sum check after you're dead.
I was born in 1963 and the S&P 500 was down 8.81% in 1962 and, although Kennedy was assassinated in November of 1963, the market was up 22.6% that year. 1964 was the…
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Monday Market Movement – Archegos Liquidates
by phil - March 29th, 2021 8:35 am
Well we had our first Financial Disaster this weekend.
The Financial press is painting over it as we don't want to upset people at the end of the quarter but Archegos Capital Management had to (for reasons unknown) liquidate $30Bn worth of holdings, one of which was Viacom (VIAC) which dropped 50% in last week. While $100 was too high for a stock we loved at $40, $50 is back to being too low and we bottomed out at $40 in Friday before bargain-hunters finally moved in.
VIAC all by itself lost $30Bn in market cap last week and now it's at $30Bn at $48.50/share for a company making $2.5Bn a year – it's a great time to jump into this blue chip holding and, for our Long-Term Portfolio, we're going to play it this way:
- Sell 10 VIAC 2023 $40 put for $12 ($12,000)
- Buy 15 VIAC 2023 $40 calls for $18.50 ($27,750)
- Sell 10 VIAC Jan ('22) $60 calls for $7.50 ($7,500)
This is an aggressive net $8,000 into what is technically a $30,000 spread but we can easily sell 5 more short calls to recoup 1/2 of our cash but, more importantly, we can roll the 2022 $60 calls out to 2023 $80 calls (for example), which are $7.50 too and sell 5 more and we'd drop our basis to about $4,000 on a $60,000 spread that would be at least half in the money or we wouldn't have rollled it. That's our plan if VIAC goes higer and, if it's flat, we'lll sell the 2023 $60 calls for another $7,500 and engineer a free spread and, if it's lower, we're very happy to add to the position as our worst-case scenario is being forced to own 1,000 shares of VIAC at net $48 – the current price.
That's a lovely trade to start the week off with, Archegos may not want VIAC anymore but we sure do! Another stock that was trashed by Archegos is Discovery Financial (DISCA) – also losing about half their "value" though value is in quotes because it was never worth $80 in the first place. DISCA too is getting interesting down here but not quite as compelling as…
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TGIF – Working for the Weak End
by phil - March 26th, 2021 8:31 am
We're down for the week.
You wouldn't think so, listening to the pundits but we started the week at 3,916 on the S&P 500 (/ES) and this morning we're at 3,910. Keep that in mind while you read your Financial Propoganda – does that FACT correlate to what you are seeing and hearing in the media. Last week we passed a $2Tn Stimulus Bill, this week Powell and Yellen testified that the Fed and the Treasury are prepared to boost this economy forever and Biden just doubled the number of vaccinations they plan to distribute by the end of May to 200M AND the Democrats vowed to pass a $3Tn Infrastructure Bill, even if they have to do it over Mitch McConnell's dead body (preferably).
What has all that done for the market? NEGATIVE 6 ponts!
So, what will it take to get us UP 6 points next week? Colonize Mars? Water into wine? Straw into gold? I think they are truly running out of ideas to stimulate the economy and, unfortunately, all of our hopes and dreams for a better, brighter, lower-interest future are already baked into these record market valuations and there really isn't anywhere else to go but down.
"Keep on (love keeps lifting me)
Lifting me (lifting me)
Higher and higher (higher)
Listen, Now once, I was down-heartedDisappointment, was my closest friend" – Jackie Wilson
Jackie Wilson is right, without a constant flow of love (or money) from the Fed, disappointment will be our only friend. Perhaps the Fed will truly love us forever – they certainly promised to do so this week but again – how much MORE in love can they be? I know people like to say "I love you more and more each day" and that's fine with an emotion but it's not real love the Fed is doling out so much as MONEY and money can be measured and how much more than this year's promised $6Tn ($500Bn/month) can they really love us?
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Faltering Thursday – Powell and Yellen Fought Reality and Reality Won
by phil - March 25th, 2021 8:28 am
It was a nice try.
As we discussed in Monday Morning's PSW Report (and if you want to know what's going to happen before it does – SUBSCRIBE HERE), Fed Chairman Powell spoke 3 times this week and each time he (with help from Janet Yellen) attempted to reassure us that the Fed has things under control and inflation is transitory and all sorts of sunshine and lollipops but yesterday, at the 1pm 5-year Bond Auction – also as expected – the investors clearly were not buying the BS and rates shot up to 0.85. 0.85 doesn't seem like a lot but they were 0.2% last July, so it's a pretty steep inversion of the Yield Curve – a very worrying sign for the economy.
Our $30Tn Debt Load is starting to worry people, especially when we're running a $1Tn deficit already and we're planning to spend another $3Tn on Infrastructure and don't forget the planet is melting and it's going to cost AT LEAST $1Tn/year to fix that – we haven't even had that discussion yet! So I'd say, conservatively, we'll be adding $5Tn in debt this year and that will bring us to about $34Tn in total debt and we are likely to hit $50Tn in 10 years – the length of the primary notes the Government sells. Do you want to get $100,000 back in 10 years after collecting 2% ($20,000) in interest over that period? Do you think that's a wise investment?
Yes, all this FREE MONEY does have a price – it's a price we all pay in the future. As the great economist, Pink Floyd said about deficit GDP financing:
"And when you lose control you'll reap the harvest you have sown
And as the fear grows the bad blood slows and turns to stone
And it's too late to loose the weight you used to need to throw around
So have a good drown as you go down all
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Whipsaw Wednesday – Merkel and Oil Reverse Course
by phil - March 24th, 2021 8:35 am
Reverse course!
German Chancellor, Angela Merkel, has apologized for calling for a lockdown in Germany over Easter after her people FREAKED OUT (Easter is a very big 4-day holiday there). During a press conference, Merkel said the Easter lockdown was formed "with the best of intentions. We must try to slow down the third wave of the pandemic. Nevertheless it was a mistake," Merkel said, adding: "Because at the end of the day, I carry the last responsibility. It's now important for me to say so here. A mistake should be called a mistake and above all it should be corrected, preferably in good time," she stressed, asking citizens for forgiveness.
Merkel said that on closer analysis, the planned shutdown risked doing more harm than good. She also said there was not enough time to adequately offset some of the problems that would come with it, such as lost earnings and working hours. "It was well reasoned, but was not really doable in such a short time," Merkel said of the Easter measures. "Many too many questions, from missing wages through to the loss of time in factories and facilities, could not be adequately answered in time."
In short, proper public health policy is taking a back-seat to Economic Policy in what, the day before, Merkel had described as an attempt to "break the exponential growth of the third wave." Yesterday, Germany had 15,813 new cases and 248 deaths. Here in the US, we had 58,764 new cases and 892 deaths, which is about right as we have 4x as many people as Germany – so we're in the same situation.
In other reverals of fortune that never happen when oil prices are high, a container ship has "crashed" sideways in the Suez Canal, blocking off the waterway that transports 1/3 of the World's oil. The cause of the accident, according to people in the know, was Oil prices slipping below…
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Turn Back Tuesday – Europe Goes Back on Lockdown
by phil - March 23rd, 2021 9:09 am
Gathering steam?
“The recovery has progressed more quickly than generally expected and looks to be strengthening,” Powell said in prepared testimony to be delivered today to the House Financial Services Committee. “But the recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes.” Powell will be appearing before the committee along with Treasury Secretary Janet Yellen as part of congressional oversight of the government’s response to the pandemic.
In forecasts released last week, Fed policy makers projected that the economy will grow 6.5% in 2021. That would be the fastest pace since 1983 when measured fourth quarter over the same three months a year earlier and would follow a 2.4% contraction in 2020 as a result of the pandemic. Inflation, as calculated by the personal consumption expenditures price index, is seen in the Fed’s median forecast as ending 2021 at 2.4%.
That all sounds great but already we're seeing some recovery issues in Europe, where Germany is imposing a hard lockdown over the Easter Holiday in an attempt to reverse a new wave of infections. Progress in fighting the crisis is showing signs of stalling. While fatalities in the U.S. and U.K. ease, places like India and eastern Europe are seeing a resurgence. Globally, we have only vaccinated 458M people – just 5% of the people. You can't "win" in vaccines – the whole World needs to eradicate the disease or it can keep coming back in different variants.
That makes Booking Holdings (BKNG), the old "Priceline", an interesting short as their recovery very much depends on global travel and global travel looks like it might end up being a bit of a disappointment this summer as nowhere near enough people are vaccinated to responsibly lift travel restrictions and countries that have been too lax are already being forced to lock back down.
At $2,232, it's an expensive stock to short and we could just buy the Jan $1,000 puts at $15 – not because we think it will go down to $1,000 but because it's not likely BKNG goes over $2,400…
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Monday Market Movement
by phil - March 22nd, 2021 8:40 am
You know the markets need a lift when they schedule Powell to speak but what kind of catastrophe are we trying to avoid when he's scheduled 3 days in a row? As I've said, the Fed is out of ideas and out of money, so all they can do now is talk up the markets but, WOW!, 3 times in 3 days from the Chairman and 20 MORE speeches from the minions – all jammed in by Thursday, ahead of the 7-year note auction – the same auction that failed last month and sent the markets tumblin' down.
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There's also some data on the calendar this week, but who can tell with all the noise coming from the Fed. GDP on Thursday is the final reading for Q4, which was last estimated at 4.1% and is not likely to be a surprise, so clearly it's the 7-Year Auction they are worried about with 3 speakers Wednesday afternoon and 3 before lunch on Thursday followed by Evans speaking during the auction and then Daly will wrap it up that evening with the post-game report.
As you can see from the chart above, we're only in the middle of a panic in the bond market and no, it isn't over just because we've been distracted since last month. Was the 2007/8 crisis over in 2008? It wasn't even over in 2009 – these things take time to play out.
On top of all the auction nonsense that's going on this week, we still have earnings dribbling in – including GameStop (GME) who is currently at $200/share, which is $14Bn in market cap for a company that made $400M in it's best year – and that was 4 years ago. Sales were $8Bn then, they were $6.5Bn last year and heading lower – not higher. Best Buy (BBY), in contrast has a $30Bn market cap with $47Bn in sales and $1.8Bn in profit. GameStop is essentially a SECTION in Best Buy – yet it's valued at 1/2 of that company's market cap – that is just INSANE!
Due to Reddit and a very poorly regulatated market, you can't short GME – no…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.
