20 Million Tuesday, 28,000 Tuesday – Record Infections, Record Highs
by phil - August 11th, 2020 8:42 am
Why didn't we think of this before?
A deadly virus sweeping the planet is GREAT for the stock market! There we were trying to keep stores open and going to work and making things – what a waste of time that all was, right? All we had to do was stay home and have the Government print money – we are all "welfare queens" now, aren't we? That's especially true of our Corporate Citizens, who are getting hit after hit of Government cash and paying record-low rates for record-high debt – what could possibly go wrong?
The stock market is up 5% in the past week and 15% since July 1st and 54% since March 23rd's 2,200 low – that's a pretty good rally. We caught that rally and now I think it's time to CASH OUT of our crisis trades so let's do a quick review of the trades we made while the rest of the World was panicking and yes, I'm now telling you to GET OUT!!! while the rest of the World is buying – imagine that….
That's right, it was now 5 months ago when we first plunged below our 2,850 "Must Hold" line on the S&P 500 and, as I said back on March 12th, "When the going gets tough, the tough go shopping" and it's not just the lower stock prices we take advantage of when our fellow investors are panicking out of positions but the higher levels of volatility raise the Volatility Index (VIX) and allow us to "Be the House" and sell options for fantastic premiums.
Initially, we sell puts to establish good entries in positions when we think there may be more downside. We'll see how those are doing and decide whether we want to expand on our plays. The first round was taken on March 12th, and these were the original trade ideas followed by the current price and profit in caps. If I don't mind holding the position – we'll call it a KEEPER:
- Boeing (
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Monday Morning Markets – Moving Past 5 Million Virus Cases
by phil - August 10th, 2020 8:44 am
5,045,564.
That's how many cases the US officially has (not that we are counting). 162,938 Americans are dead, that's much harder to cover up. Globally we are about to cross 20M cases at 19,877,261 with 731,570 deaths so the US has more than 25% of the global cases and 22% of the deaths – despite having just 3.7% of the population so Trump is right – America is leading the world by a factor of 6 – no one transmits the virus or dies from the virus like we do! MAGA!!!
The markets don't seem to mind and we're still up around record highs as the worst things are for the American people, the better things are for American Corporations, apparently, as the stimulus fairy comes and pays them visit after visit. President Trump played the fairy this weekend, waving his executive action wand and unconstitutionally wishing for various bribes to the voters:
- $400/week supplement to unemployment checks (states need to pay for it and Federal supplement comes from Disaster Fund that's meant for hurricanes, etc).
- Suspend payments on Student Loans through 12/31 (but not the interest).
- Extend eviction protection through 12/31 (the courts can't handle the backlog anyway)
- Defer Payroll Taxes through 12/31 (a disaster for the Social Security and Medicare System and also puts a huge tax burden on the employees at the end of the year they are unlikely to manage for, which will be blamed on Biden as a tax increase, of course)
In other words, Trump's Executive Orders are a whole lot of nothing but Congress and the White House have still failed to reconcile Democrats' $3.4Tn coronavirus-relief plan and Senate Republicans' far smaller $1.1Tn proposal. The Paycheck Protection Program expired Saturday. The future of the small business rescue plan is in limbo. “Meet us halfway and work together to deliver immediate relief to the American people,” Pelosi and Schumer said in a joint statement. “Lives are being lost, and time is of the essence.”
Joe Biden, noting that Trump signed the “half-baked” orders at his golf club in New Jersey, said they short-change the unemployed and trigger a “new, reckless war on Social Security." “These orders are not real solutions,” soon to be President Biden said. “They
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Friday Federal Failure – Congress Takes a 3-Day Weekend Without Fixing Anything!
by phil - August 7th, 2020 8:31 am
WTF?
The unemployment benefit boost ran out last Friday and, all week, we were told Congress was making progress towards a new stimulus bill and President Trump, who has never steered us wrong, said that if Congress couldn't agree to extend benefits he would sign and executive order but, last night, the whole thing blew up and we got – NOTHING!!!
Democrats have introduced the HEROES Act which would provide $3 trillion of economic relief. The Republican plan, the HEALS Act, would only allocate $1 trillion dollars. Both sides have attempted to reach compromises in order to pass a cohesive bill, but that has yet to occur.
After a meeting between Democratic House Speaker Nancy Pelosi, House Minority Leader Chuck Schumer, White House Chief of Staff Mark Meadows and Treasury Secretary Steven Mnuchin, Pelosi said no progress had been made. "We're very far apart," Pelosi said. "It's very unfortunate." Pelosi said Republicans "didn't take the virus seriously in the beginning, they're not taking the consequences of the virus seriously at this time. And that's why it's hard to come to terms."
As noted by Paul Krugman, employment has plunged, and real G.D.P. fell by around 10 percent. Almost all of that, however, reflected the direct effects of the pandemic, which forced much of the economy into lockdown. What didn’t happen was a major second round of job losses driven by plunging consumer demand. Millions of workers lost their regular incomes; without federal aid, they would have been forced to slash spending, causing millions more to lose their jobs. Luckily Congress stepped up to the plate with special aid to the unemployed, which sustained consumer spending and kept the nonquarantined parts of the economy afloat.
The Democrats put up the HEROES act in JUNE and now it's AUGUST and we're still waiting on the Republican plan – even though they are well aware of the consequences of not moving forward. Unlike affluent Americans, the mostly low-wage workers whose benefits have just been terminated can’t blunt the impact by drawing on savings or borrowing against assets. So their spending will fall by a lot – pretty much immediately.
8:30 Update: 1.8M jobs were added in July,…
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Faltering Thursday – Jobs Disappear and Take Market Highs With Them
by phil - August 6th, 2020 8:21 am
695,000.
That was the most people ever laid off in a single week in the US, way back in 1982. In March, layoffs peaked out at 6.9M in a single week and, for the month of July, they've been around 1.3M – each week – double our worst week in history 4 weeks in a row. And this is what President Trump calls a recovery?
As you can see from the Unemployment Chart, we still have about 17M jobless Americans (officially) and it's getting worse again. Temporarilly laid off workers went back to work but the jobs thate are being lost now are the permanent kind, due to store closing, restaurant closings, etc. – jobs that aren't going to bounce back quickly and can't be "fixed" with a small stimulus loan.
And, don't forget, the Government supplemented businesses NOT to lay off workers through July but now that those supplements have run out, a lot of companies have to make hard choices to either pay the rent or pay the workers and many are just giving up and doing neither and, when the landlords can't pay the bank – that's when the Fed leaps into action! A good example of reality from the Wall Street Journal this morning:
Shana O’Mara has been receiving unemployment benefits since early July, after the expiration of a government loan that was sustaining her Tempe, Ariz., travel agency. She stopped drawing a salary from her business to keep it alive, but has continued to work without pay helping customers rebook and cancel trips.
She said her most recent weekly unemployment benefit payment fell to $214 after taxes, from $748 the preceding week, reflecting the July 31 expiration of an additional $600 in pretax federal benefits. “I don’t think anyone can live on $800 a month,” she said. Her family has stopped ordering takeout, and she called her auto lender and
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Will We Hold It Wednesday – Dow 27,000 Again?
by phil - August 5th, 2020 8:34 am
We'd better give some to Disney (DIS), who lost $5Bn in Q2 and has given up on releasing Mulan (live version) in theaters and will go straight to video in September. The Covid-19 pandemic has closed Disney’s theme parks, virtually eliminated movie distribution and curtailed live sports, a key programming source for Disney TV networks. However, the world’s shut-in nature has helped the company’s Disney DIS 0.81% + streaming service secure more than 60 million users in nearly nine months, a mark that Netflix took about eight years to achieve.
In other playground stocks, WYNN also lost $5Bn this morning in their Q2 report and the company has $3.8Bn in cash left and already has $12.8Bn in debt. The company is trading at about 50% of it's all-time high despite revenues being off 94.8% for the quarter and despite the fact that WYNN has only made about $2Bn in the past 5 years so a $5Bn loss is wiping out 10 years+ of profits.
Of course the nice thing about WYNN going forward is it will be 10 years until they have to pay taxes again but it could be 100 years if they lose another 5Bn in Q3 and go bust – all this optimism assumes things will be back to normal next year but, between now and then, how much debt damage will be done.
Unfortunately, we simply don't have enough information to take a stab at WYNN for $8Bn when they are losing $5Bn a quarter. What rational investor would pay $8 to lose $5 per quarter? These losses are real, they have to either borrow more money next Q (you already owe $13 as a proud shareholder) or find more investors, which will dilute your position. As fun as it would be to own the stock going forward, even if they make $500M/year, there's this debt to pay and $8Bn is still 16x FUTURE earnings – that's not a good deal by any stretch.
Most stocks are like that at the moment and so is the entire market. We're irrationally ignoring the the potential downside to a second wave of viral infections and we're still in the middle…
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Toppy Tuesday – Waiting for the Shoes to Drop
by phil - August 4th, 2020 8:26 am
We're still at 11,000 on the Nasdaq.
We punched over it a bit yesterday and we're into our second round of shorts on the Nasdaq (/NQ) Futures now and you can still catch them crossing the 11,000 line with tight stops above, which is a more conservative way to play. We scaled back in overnight, taking advantage of the spike up to end up with 3 short at 11,048 average so 11,000 is now our stop line to lock in the net $1,000 per contract gains (there were some losses that are offset).
The Russell (/RTY) is below 1,500 so, as long as that stays below, it's still good to short /NQ and the Dow (/YM) failed 26,600 and the S&P (/ES) failed 3,300 again and we're probably on the way back to 3,150, which is the Must Hold Line on our Big Chart and also now the 50 dma(ish). Our tracking chart for the S&P is more conservative as we don't think this bull run will last so the Must Hold line on the SPX is still 2,850 and thats' a solid 15% drop from where we are now:
Our hedges in the Short-Term Portfolio are holding up well and the portfolio itself is up 373% for the year as the STP loves volatility – and we've had plenty of that. Although it's early in the month, not much is happening today so it's a good time to go over our hedges and see if there's anything we should adjust (there wasn't last time). We haven't touched the positions since July 14th (3 weeks) other than adding the short INTC puts but, since then, the Long-Term Portfolio (LTP) has gained $75,000 AND the Short-Term Portfolio (STP) is up $70,000 too – not bad for leaving things alone!
- CANE – I thought sugar consumption may go up during a pandemic and so far, so good and we're well over our very conservative target. Keep in mind that we sold the Oct $5 puts for 0.75 so our net entry is $4.25 and we make 0.75 (17.6% against risk) if CANE is
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Monday Market Movement – Nasdaq 11,000 and Bust, Again?
by phil - August 3rd, 2020 8:33 am
Apple $425, Nasdaq 11,000 – Yipee!!!
As you can see on the chart, AAPL is up almost 40% for the year and AAPL is 15% of the Nasdaq so it's responsible for 6% of the Nasdaq's rise from 9,000 to 11,000 (22%) for the year so 27% of the Nasdaq's rise is due to one stock and then you have to consider the suppliers Apple boosts along with their own stock.
Apple is having a break-out moment as $425 per share is a $1.8Tn market cap so we're just 10% away from $2Tn in valuation at $470 – get your party hats ready. $2Tn is the GDP of Italy (#9 in the World) or Brazil (#8) with France, India and the UK, with population of 65M in France, 1.4Bn in India and 67M in the UK doing a piss-poor job comared to Apple's 137,000 employees. Is the average Apple employee 10,000 times more productive than the average Indian? If so, it's hard to explain the valuation of Infosys (INFY).
Speaking of companies that are worth $1.5 Trillion (yes, there's more than one now), Microsoft (MSFT) is trying to buy TikTok's North American operations so they can have something cool in their portfolio (now that's they've given up on Bing). President Trump has been helping Microsoft by threatening to ban TikTok in the US, devaluing their platform and scaring the company enough for MSFT to swoop in and make an offer – good old-fashioned strong arm tactics from your favorite Oiligopolists:
“Microsoft appreciates the U.S. Government’s and President Trump’s personal involvement as it continues to develop strong security protections for the country,” the company said in its statement.
The deal would land Microsoft the breakout social-media player of this decade. It would give Washington a win over Beijing by bringing a Chinese technology crown jewel under U.S. ownership. For TikTok parent ByteDance it would resolve the national-security concerns that threatened to thwart its U.S. operations. The proposed transaction gained the blessing of senior Trump officials, including Treasury Secretary Steven Mnuchin, who saw value in an American company getting access to sophisticated TikTok algorithms that decide what videos users are…
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Thank Tech it’s Friday – Apple and Company Boost the Markets
by phil - July 31st, 2020 7:31 am
Apple (AAPL) had $59.69Bn in revenues last quarter and that's up 10.9% while the rest of the economy was down 33% and the market logic is that one company making money trumps an entire economy losing money. Of course it's ridiculous but what can you do?
The chart on the right illustrates just how bad our Q2 GDP was compared to… well, history! This one-quarter drop in GDP was worse than ENTIRE RECESSIONS COMBINED yet the market is trading like we are going to just dust ourselves off and get right back into the race. Of course Apple did well – they sell exactly the kind of crap that people forced to sit on their couch for 3 months are going to buy. Amazon and other tech companies did well too because they cater to the shut-in crowds – you can't judge the economy or the market by what was bound to be the strongest sector.
Apple was our Stock of the Year 3 times this decade and, just two weeks ago, on July 17th, we did our Portfolio Reviews and we made aggressive adjustments to our AAPL position in the Butterfly Portfolio:
AAPL – We got more conservative but AAPL did not. The Aug $330s are $60 and they can be rolled to the Oct $350s at $50 so we're paying $10,000 for $20,000 more strike. Since our $200/260 spread is now net $144,000 out of a potential $180,000, it has $36,000 more to gain to cover the short calls. Still, we can do much better than that in two years so we'll cash that spread ($144,000) and move to 40 of the June 2022 $300 ($117)/400 ($65) bull call spreads at $52 ($208,000) so we're spending $64,000 to move from a spred with $36,000 potential to one with $192,000 potential – easily covering the short calls but also well-covered by them.
| AAPL Short Call | 2020 18-SEP 350.00 CALL [AAPL @ $384.76 |
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GDPhursday – Fed Boost Doesn’t Last 24 Hours
by phil - July 30th, 2020 8:32 am
Wheeee, that was easy money!
In yesterday's Live Trading Webinar, we were watching the Fed report live and we didn't see what people were being so bullish about so I made a call to short the Russell (/RTY) and the S&P 500 (/ES) Futures, which I reiterated in our Live Member Chat Room:
"In the Webinar we decided to short /ES at 3,250 and /RTY at 1,500. GDP tomorrow is likely to be ugly."
As you can see, we've already gained over $1,000 per contract and we haven't even had the GDP Report yet (8:30) and that is expected to show a horrific 30+% drop in US economic activity for the 2nd Quarter. It's POSSIBLE we have an upside surprise – thanks to $5Tn of stimulus spending during Q2 but, either way, we're in the middle of an economic disaster with not end in near sight.
Germany's GDP was down 10.1% this morning and that is twice as bad as it was in 2009, the second-worst on record (only records since 1970) but Germany, unlike the US, had a plan to fight the virus and has things more or less under control with 208,892 – about as many cases total as the US has deaths (150,716 so far). Germany has just 9,137 deaths to date, both about 5% of the US's totals although they have 25% as many people (84M).
8:30 Update: Officially we're down 33% DESPITE the $5,000,000,000,000 boost by the Fed and Congress (see yesterday's Report for breakdowns) so I'm very glad we put on those extra hedges as things could get pretty ugly although it's really right in-line…
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Which Way Wednesday – Fed Edition
by phil - July 29th, 2020 7:58 am
Will the Fed save us (again?).
Looking at the chart on the right, clearly we are in need of saving. Those numbers are pretty up-to-date and we're starting to re-close in certain places and several airlines and auto makers have announce massive job cuts that are not going to make things better. At least this chart will LOOK better as people will no longer be getting the benefits, which run out soon – so they will no longer be counted on this chart – having moved over to the "homeless" chart or the "impoverished" chart.
30M unemployed is 1/10 of our fellow Americans and you know how many more businesses are struggling in your neighborhood. Is it another 1/10th? Will 20% of our people be out of work soon? What happens to the economy if 20% less people are getting paychecks? Clearly the Government, even if the Liberals take charge, will need 20% more money to prop it up and we've already spent $6.7Tn in the past 4 months just to get to this mess!
Obviously the money was mainly misdirected and wasted but is that going to change when we give Jared another $500Bn of untraceable funds to play with? What happened to the first $500Bn? Oh yeah, untraceable… Well there was another $500Bn that the Treasury had and that fund was traceable but, at last count, no one was getting that money either.
Notice how the Federal Reserve Actions are not being counted as part of our debt and that's a good thing as we've added $2.5Tn in new debt already this year and Congress is voting on another $1-3Tn to get us through Q3 but even $6Tn is barely 1/3 of our GDP and we've certainly taken a 30% hit to the economy this year – we'll find out more in tomorrow's GDP report.
The Fed still has plenty of available firepower and they are currently using it to buy assets, including stocks, in order to prop up the markets. They've spent their entire allocation of asset money but almost none on improving liquidity or actually lending money to people who need it while the Trump Administration has spent every single penny they got their hands on…
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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.