GDPhursday – Does Anything Matter?
by phil - May 28th, 2020 8:31 am
"Nothing really matters,
Anyone can see,
Nothing really matters,
Nothing really matters to me." – Queen
Does GDP even matter?
We'll see this morning as we're going to get the worst GDP reading since 2008 - and that's just for Quarter 1, Quarter 2 will be much worse – there's no stopping that now (another Queen song) and that number will show a double-digit decline in GDP so -5% for Q1 is actually tame by comparison.
8:30 Update: As I write this, the S&P Futures are up 0.25% at 3,040 and the Dow is up 0.7% at 25,700. In addition to GDP we have the Durable Goods Report, which is showing a 17.2% drop in April and -7.4% ex-Transportation, which shows you how bad Transportation was in April. We also had another 2.12M Americans file for Unemployment – also worse than expected but none of this seems to be affecting the markets – which are chugging along at their pre-market highs.
We can only assume that Liquidity Trumps all other things – as does the Oligarchy and that was on full display in this "Tax Fairness" Report which shows how $434Bn of the Government's $2.7Tn bailout (so far) has gone directly to America's 630 wealthiest people (Donald Trump is #248) a 15% increase in their $2.6Tn total wealth in the past two months!
16 new Billionaires were added to the Forbes List, including Trump's pal Kanye West – that's in the past 60 days! During that same 60 days, 38M American's lost their jobs, 1.5M became infected with Coronavirus and 100,000 died but, as the President says – they are soldiers going to war for Capitalism, right?
“The surge in billionaire wealth during a global pandemic underscores the grotesque nature of unequal sacrifice,” said Chuck Collins, director of the IPS Program on Inequality and co-author of the Billionaire Bonanza 2020 report. “While millions risk their lives and livelihoods as first responders and front line workers, these billionaires benefit from an economy and tax system that is wired to funnel
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WTF Wednesday – Markets Keep Going Higher for No Real Reason
by phil - May 27th, 2020 7:57 am
This could be the short of a lifetime.
Once again we're over 3,000 on the S&P 500 – at 3,035 early this morning and 3,030 now, at 7am and it's RIDICULOUS because 2020 earnings are forecast (even WITH re-opening now priced in) to be $128.49 for the S&P 500 so, at 3,030/$128.49, you are paying 23.5 times earnings for 2020 and next year – even if we do improved to $164.26, 3,030 will still be 18.4x earnings.
While 18.4 doesn't sound terrible, historically, the S&P 500 trades around 15x earnings or 2,464, which is where we were in 2018, when the S&P was making $161.46. In 2015 and 2016, the S&P was trading at 2,100 and earnings were $119(ish) – that was 17.64 – a bit high but tolerable. 23.5 is 33% above 17.64 – 33% more than tolerable. If it were a stove, you'd say ouch but probably not a severe burn but any higher than this and, like Icarus, this market will burst into flames.
So, WTF is going on with the S&P and the market in general, for that matter?
Well, the Government is pumping $6.7Tn into the economy and that's about 1/3 of our normal GDP, so we should be able to breeze through 4 months of suffering with only the hangover you get from having $26Tn in debt to pay off one day.
Since we haven't had anything near a total GDP wipeout (revision to Q1 comes Thursday, Beige Book today) and we're already re-opening, there should be PLENTY of money sloshing around to provide liquidity for a rally but it was applied in a very mess, haphazard manner and really only benefitted the Top 1% (as most things do these days) while there is still a lot of suffering for small business and individuals.
And, of course, there are many people, including the President, who seem to believe the virus is gone and won't be back and the re-opening is a huge success – all with very little evidence backing it up.
What's real and what's not remains to be seen but one thing I do know is real is earnings and MATH is also very, very real and the math…
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PhilStockWorld May Portfolio Review
by phil - May 27th, 2020 7:36 am
$1,133,755!
That's up $30,884 for our paired portfolios and just off our high of $1.2M – where I said we should just cash out and quit for the year – up 100% since October. Since that's a boring way to spend the next 6 months – we decided to hedge the STP a bit more and let most of our LTP positions run but it was mission accomplished at May expirations (15th), to be flat(ish) to April (17th) as the S&P 500 finished 17 points lower for the earning period, which we were very worried about.
As it turns out, the market shook everything off and now, as of yesterday's close (26th), the LTP is up 51.6% at $757,943 and the STP is still at $577,225 so now we're at $1,335,168 so our plan worked perfectly! And what was the plan? To keep the longs we felt would be making a recovery AFTER we got to see the earnings reports and AFTER we got a glimpse of how the Lockdown was resolving itself. You know – WITH FACTS! Facts are nice, they are very helpful in investing but sometimes you need to wait for clarity – a lot of people are not good at the waiting part…
Using hedges to park our portfolios more or less in neutral (back in April) while we waiting for more facts gave us the breathing room to relax and read and think about what trends mattered and that helped us make better decisions in May and now we're way past the previous highs. And what are we going to do now? HEDGE IT TO LOCK IN THESE GAINS! See, these quizzes aren't hard…
Short-Term Portfolio (STP) Review:
So hedging, hedging is key to maintaining our portfolios. Our Long-Term Portfolio, which started the year at $500,000 had recovered well in our last review and was sitting at $542,305 almost a month ago and, since then, the S&P 500 has gone from 2,750 to 2,950 and our LTP has popped to $649,193…
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Terrific Tuesday – Testing S&P 3,000 – Again
by phil - May 26th, 2020 8:13 am
No major incidents.
We had a lovely holiday weekend here in the US and nothing terrible happened as much of America re-opened for business so, without any obvious blood in the water – the markets are in celebration mode. We won't know there's a problem with re-opening for another week as people don't tend to show Covid symptoms right away so, for now, we can act as if everything is fine – and maybe it is and, if it is, then $6.7Tn was certainly enough money to get us through a 2-month lockdown.
If, on the other hand, these isolated spikes in new cases begins to spread, then the people getting all bullish now are idiots and betting into another disaster. Of course, Corporate Profits have sucked so it's kind of hard to justify a trip back to the all-time, pre-virus highs but traders gotta trade and there's not really anyting else to put your money into in this zero-rate World other than good old US Equities.
That's fine with us as we have PLENTY of long positions. In fact, we added more hedges to protect our Long-Term Positions, which already made a ridiculous amount of money on the re-rally and this morning the Futures are up another 2%, right at the 3,010 line on the S&P 500 (/ES), in fact.
In order to push the facts even further out into the Future, the Trump Administration released their testing strategy to Congress on Sunday and it was, of course, no strategy – instead pushing the responsibility of testing out to the individual states so they should have 50 different methods and 50 different ways of counting and 50 different panels wasting money on 50 redundant studies rather than have a Federally coordinated effort organized by the nation's top experts. MAGA Baby!
The proposal also says existing testing capacity, if properly targeted, is sufficient to contain the outbreak. But epidemiologists say that amount is much lower than what many of them believe the country needs. Acquiring tests involves reliance on national and international supply chains, which are challenging for many states to navigate.
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Friday Follies – America Heads to the Beaches
by phil - May 22nd, 2020 8:16 am
"Come sleep on the beach
Keep within my reach
I just want to die with you near
I'm feeling so high with you here
I'm wet and I'm cold
But thank God I ain't oldNothing is planned, by the sea and the sand" – Who
It is, as noted by Linette Lopez "The Perfect Storm of Stupid" in which, for purely economic reasons, we are risking the lives of Millions of Americans to get business back up and running for Memorial Day Weekend. She notes that China's economic rebound has been led by manufacturing and industrial sectors while the country's service sector, especially when it comes to transportation and leisure, is still pretty dormant. That is bad news for the US. Most of our economy is made up of small and midsize businesses in the service sector. Consumption is what we do.
Manufacturing will not lead America out of this economic malaise; it simply isn't big enough. The coronavirus pandemic has hit our economy exactly where it counts: in services. we have in the market is an unholy mess. We have bored, unseasoned, emotionally conflicted investors playing around in a murky pool where one of the most opaque sectors has the ability to make the biggest waves. It's very stupid — people are going to drown.
Meanwhile, I've been discussing my own experiences in Florida this week as you are hard-pressed to find people wearing masks down here and the hotel my daughter is staying at (she drove down) is now about 1/3 full and the restaurant we ate at last night (I know!) was half full with the staff wearing masks but none of the customers doing so.
This has been going on since last weekend and every day people get braver and braver but, meanwhile, do you see that spike in new infections. …
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Faltering Thursday – Rejected at S&P 3,000 Again
by phil - May 21st, 2020 8:30 am
I get it.
It's hard to get back over the 200-day moving average so we're not going to read too much into this early failure but it is worrying that we're heading into a 3-day weekend as tensions with China rise and the virus is raging in countries that have re-opened so that MIGHT be considered a set-back on 2 fronts that have moved the market up this year.
If we were to zoom out to a monthly chart of the S&P 500, we could throw out the spike down to 2,200 – as it quickly reversed – but that would leave us with a 3-month, 20% move down to our Must Hold Line that, so far, has only resulted in a weak (4%) bounce with repeated failures at the 5% line.
According to our 5% Rule™, which is NOT TA but just math, consolidating below the weak bounce line means we are more likely consolidating for a move down than up. That would be a move down below our Must Hold Level at 2,850 and back down to test the -10% line at 2,565. It's the same kind of bounce and weakovery that we had back in late 2018 – and we didn't need a virus then to plung 15% in 3 weeks in the second leg down.
All we've done in 2020 is double the scale but the computers are running the same algos they ran then. A one-month drop, a 2-month recovery and then they pull the rug out again (Thanksgiving weekend) and now we're heading into Memorial Day weekend all complacent again. I spent a lot of the Webinar yesterday warning about this so I won't re-hash it all – let's instead look at a good hedge to cover it.
In our Short-Term Portfolio, we added a TQQQ on Tuesday and it's up a bit but still playable. We also have our Jan SQQQ spread which, at net $42,000 (even cheaper now), pays $200,000 (376%) if SQQQ is over $20 in January – which is only 8 months away as this year rushes by. These are the sorts of plays that gave us our tremendous profits during the recent downturn, so of course we're going to use them…
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Red Badge Wednesday – Trump Says He’s Honoring Us With 1.5M Infections
by phil - May 20th, 2020 8:29 am
You can't make this stuff up.
Well, Stephen Crane did when he wrote "The Red Badge of Courage" in 1895 and we know Trump didn't read it (because it's a book) but apparently one of his writers did and they brilliantly gave Trump a new way to spin the World's highest rate of infection (and these are the non-fictional words of the President of the United States):
"By the way, you know when you say that we lead in cases, that's because we have more testing than anybody else. So when we have a lot of cases I don't look at that as a bad thing, I look at that as, in a certain respect, as being a good thing because it means our testing is much better. So I view it as a badge of honour. Really, it's a badge of honour."
When you have to say "really" right after you say something, you KNOW the thing you said sounded like you were joking… Clearly, to the rational mind, testing doesn't cause infections. Countries that get the virus under control with less than 1.5M cases tend to do less testing. As the US infection rate hits 3M, 10M and 20M – I'm sure we'll do a lot more testing while countries that drop to a dozen cases a day will do less testing – BECAUSE THEY DON'T NEED TO! Holy cow – it amazes me that I actually have to put this kind of stuff in writing but, amazingly, a huge number of people don't understand the logic – including the President.
“At times he regarded the wounded soldiers in an envious way. He conceived persons with torn bodies to be peculiarly happy. He wished that he, too, had a wound, a red badge of courage.”
“His fingers twined nervously about his rifle. He wished that it was an engine of annihilating power. He felt that he and his companions were being taunted and derided from sincere convictions that they were poor and puny. His knowledge of his inability to take
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Toppy Tuesday – Here Come Those Tears Again at S&P 3,000
by phil - May 19th, 2020 8:53 am
"Baby here we stand again
Where we've been so many times before
Even though you looked so sure
As I was watching you walking out my door
But you always walk back in like you did today
Acting like you never even went away
Well I don't know if I can
Open up and let you in baby
Here come those tears
Here come those tears again" – Jackson Browne
Trump says there's a vaccine?
Seriously, that's why we're rallying? How many times does Donald Trump have to lie to us before we stop believing him? We WANT to believe there's a vaccine, we WANT to believe that a Hydroxycloroquine a day will keep corona away but we KNOW (at least most of us do) that that is bat-shit crazy – yet that's what Trump was promoting yesterday – along with his miracle vaccine.
“My concern would be that the public not hear comments about the use of hydroxychloroquine and believe that taking this drug to prevent Covid-19 infection is without hazards. In fact, there are serious hazards,” said Dr. Steven E. Nissen, the chief academic officer of the Miller Family Heart, Vascular & Thoracic Institute at the Cleveland Clinic.
Dr. Scott Solomon, a professor of medicine at Harvard Medical School, said Mr. Trump’s decision to try the drug was up to him and his physician. “But what is irresponsible is the example he is setting,” Dr. Solomon said.
Mr. Trump publicly embraced hydroxychloroquine as a “game
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Monday Market Movement – No News is Good News
by phil - May 18th, 2020 8:32 am
Nothing happend this weekend.
Unlike last weekend, we didn't escalate our Trade War with China or actual wars with other countries and there were no new major scandals in the White House (that we know of yet) and there were no rogue scientists telling us we were re-opening the country too soon so the markets are in a great mood this morning and I'm in a great mood this morning as my daughter drove down from NJ to Florida to see me and I spent a very nice weekend hanging out at the pool in an 80% empty hotel (having her stay at the house still seemed too risky to me).
Not to advertise this particular hotel but the Opal Grand in Delray Beach has a lovely pool and is right on the ocean for just $175 night and parking was pleasantly free and, because I'm a local, we got 30% off that price so $122.50/night. I felt safer there than I do in the rest of my town, which is as full as it ever was this time of year (off season) with MAYBE 2% of the people wearing masks. The hotel has no restaurants open but they are selling food in the lobby.
Having just done it – I highly recommend taking a mental break and simply going somewhere else for the weekend – even if it's just a hotel in your own town. I checked out all the hotels in town and this one wasn't crowded and used to be a Marriott and is clean and nice (half is being rennovated) so it's no less safe to go to this hotel than the supermarket, probably safer but what a treat just to be somewhere else for a couple of days – even just a few blocks down the street from my house!
I even bonded with other survivors of the Viral Apocalypse – just like humans do when they encounter each other in zombie movies: "Where are you from", "What's it like over there?" "How did you make it here?", "What do you think will happen next?" My horror story of walking 4 blocks to get to the hotel didn't compare to the guy who sat in the middle seat on a packed plane (I gave him a…
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Fickle Friday – Market on the Road to Nowhere in the Month of May
by phil - May 15th, 2020 8:18 am
S&P 2,850.
That line is like a magnet and, halfway through the month of May, right where I predicted we'd be when I was on Bloomberg on March 11th (see: "Thursday Failure – Trump Shuts Travel, Provides No Solutions, No Stimulus – Market Tanks (again)" for the recap). That prediction was not for political reasons – it was based on our assessment of the VALUE of the S&P 500 based on what we knew regarding the virus, the stimulus, the political and social environment. You know – Macro Analysis.
There's been a ton of BS thrown around as the virus and our Government's response to the virus, has become such a political issue that I can't even say the President is doing a bad job without getting death threats. My job as an analyst is to tell you what's really going on – whether you want to hear it or not – anything less than that wouldn't just make me bad at my job, it would make me dishonest.
If you want an honest, balanced assessment of where we are now – here's the Mayor of Los Angeles – one of the smartest guys I ever met – giving his assessment of how we stand as cities struggle to re-open:
Also on Wednesday, Garcetti said on ABC: "I think we have to all recognize that we’re not moving beyond COVID-19. We’re learning to live with it." “We’ve never been fully closed, we’ll never be completely open until we have cure,” he added. That's why we got more aggressive with our hedges on Tuesday (ahead of Garcetti) as the S&P approached 3,000 and we did the math and decided that would be a p/e of over 35 on the S&P – a bridge I did not feel even irrational investors and trade bots were willing to cross.
That post became part 7 of our Portfolio Protection Workshop and I strongly urge you to re-read that series over the weekend as we may be approaching another major down leg as the World will hit 5M infections next week and the US alone will pass 1.5M infected as we are still getting 25,000 new cases each day…
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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.