Faltering Friday – Tesla Tumbles, Takes Nasdaq With It

Image result for emperor musk has no clothesWell, that's a big "I told you so!"

Way back in our August 8th PSW Report (and in our Live Member Chat Room the day before) our reaction to the Elon Musk tweet that Tesla (TLSA) was considering going private at $420 with "funding secured" was to call BS and short the stock.  The title of that particular report was:  "Wednesday’s Whopper – Musk Claims Some Idiot Offered Him $420/share for Tesla!" in which I said:

$420 per share?!?

That's $72Bn for a car company that had to run production lines in tents to push out 5,000 cars in the last week of July and, aside from the high level of defects reported in the cars that have been delivered, word is that it's taking weeks to get even basic repairs done and MONTHS for replacement body parts to arrive.  Not only that but the Model 3s that are being delivered are averaging $64,000, not $35,000 as promised and TSLA is going to run out of $7,500 EV credits this year – as well as cash

The company lost $1.9Bn in 2017 on $11.7Bn in sales and, in Q1 and Q2 of 2018, they have lost $1.4Bn on $7.4Bn in sales so 58% more sales 47% more losses – I guess that COULD be called improvement, right?  Liabilities have "improved" from $21.9Bn to $22.6Bn but what's another $700M between friends, right?  TSLA also "needs" to build a $2Bn factory in China and maybe put a roof on their new production lines in Freemont so that's what, about $100Bn to take over TSLA for the joy of losing another $1.5Bn for the rest of 2018?


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GDPhursday – 4.2% Now, Below 3% From Now On

This is not pretty:

While this morning's GDP Report may show that we grew at a 4.2% pace in Q2, the Federal Reserve thinks that's so unusual that our annual GDP gain will still only be 3.1% for 2018 and then they see that DROPPING to 2.5% in 2019, 2% in 2020 and 1.8% in 2021, giving Trump and his policies the worst 4 years of GDP growth since Bush's 2nd term or Hoover's only term.

Image result for trickle down trumpWhat's even worse is that Trump's budget projections expect 4% GDP Growth and if we fall 2% shy that's $400Bn less growth than anticipated and Trillions of additional Dollars will compile into our debt if the Government fails to hit their collection targets – which we all knew was based on a ridiculous trickle-down fantasy in the first place – we just didn't expect it to all fall apart so soon.  

The Fed is calling this the bottom in Unemployment as well and does not project more than the usual amount of jobs to be created, despite the massive stimulus that's been given to the Top 1% and their Corporations.  Again, any idiot could have predicted that but 63M people believed the BS enough to vote for Donald Trump or, more accurately, 62,400,000 believed the BS and the other 600,000 were happly to screw them over in order to get their tax cuts. 

The Fed, for its part, still sees the need to "normalize" interest rates and project a 3.25% rate by the end of next year, which would be 4 more 0.25% hikes over the next 8 meetings but that's going to be miles behind the bond market, which is already hitting 3.05% on the 10-year notes.  Even more alarming, the 10-year note began this month at 2.85% so up 0.2% in a month is a 7% increase in less than 30 days.  While the Fed may be content to keep lending at unrealistically low rates, real-world lenders are not and borrowing costs are increasing – no matter where the Fed sets their "benchmark."  

Rising interest rates traditionally have a negative impact on Business Profits, Home Sales and Consumer Spending so, as long as the stocks you are holding
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Which Way Wednesday – Fed Edition

It's rate hike time!

We have a Federal Reserve Rate Decision at 2pm and a hike is very widely expected but whatever Powell says in the subsequent conference afterwards is likely to affect the market going forward.  Even more importantly, the Fed will release their first economic estimates for 2021 and we'll get to see if they think the economy is going to grow fast enough to justify these runaway market prices.  Here's a preview from Market Watch.

Keep in mind that Trump's economic projection hinge on having better than 3% increases in GDP while 2% barely keeps up with inflation and, according to even the Fed's conservative inflation projections – loses ground to it.  As noted in yesterday's PSW Report, the Government had to borrow $156Bn in September just to keep the lights on and every 1% increase in interest rates costs us $200Bn in additional interest payments alone.  If the economy is stagnant and rates are rising – what are investors so excited about?

IN PROGRESS

 

 

Toppy Tuesday – Markets Bounce Back Ahead of the Fed

And we're back!

The Dow is up 75 points pre-market, back at 26,700 and the Nasdaq is testing the 7,600 line, which will certainly be bullish if they break over it but, until then, I like /NQ as a short with tight stops above.  We also re-shorted Oil (/CL) Futures at $72.50 this morning – also with tight stops above as it sets a nice, positive risk/reward ratio to do so.  We made $500 shorting /CL yesterday on an 0.50 drop and about the same on Gasoline (/RB) as it fell so no reason not to give them another chance to make us money, right?

Trade Wars are not good for oil demand and 74 out of 98 S&P Companies that have issued Q3 guidance so far have isssued negative guidance and that's already the worst rate since Q1 of 2016 when the S&P fell 15% from 2,100 to 1,800 as earnings rolled over.  It's still early in the cycle but negatives outpacing positives 3:1 is certainly something we should be taking note of.  Or, we can add it to the ever-growing list of negatives that investors are ignoring in this rally… 

Percentage of Companies Issuing Negative EPS Guidance

Keep in mind that figure is WITH all the buybacks and WITH all the M&A activity and WITH the still-low interest rates and WITH what is still $60Bn/month in QE, though that may change on Wednesday if the Fed begins to pull back – as it has said it was planning to do.  

Related imageThough our Fed has begun to somewhat unwind their QE program, the rest of the World's QE is only just now hitting its peak, so of course the markets are at record highs when there are record amounts of money chasing equities but this (2018) should mark the end of the Global Liquidity Boom and now comes the reduction – a slow and painful process that will be with us for years as the Central Banksters race to drain the monetary swamp before all those Dollars lying around begin to turn inflationary.

This is the greater market picture you need to be concerned with – it's the macro that will be driving the market
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Monday Market Movement – OPEC Blasts Oil Higher, China Walks from Trade Talks

Move along folks, nothing to see here.

Despite a run of bad news over the weekend, so far, the market indexes seem unphased by negative news reports.  Of course it is the last week of the quarter and windows need to be dressed so we'll see what happens when October rolls in, along with Q3 earnings, when we may begin to see some companies begin to choke on higher wages and trade concerns.  As noted in the Wall Street Journal, Industrial and Material stocks are in their own private bear market yet no one is taking it seriously at all.

There’s a number of money managers who’ve been hesitant to be involved with the [companies] that are going to be potentially affected by the tariffs, whether they’ll be able to export fewer goods or be buying less from China,” said Mark Grant, managing director and chief global strategist at B. Riley FBR Inc.

As I noted last week, China's Shanghai Composite is down 20% for the year and would likely have been down more today as China withdrew from trade negotiations over the weekend but that market is closed today for a holiday.  THESE ARE THE SAME KIND OF THINGS PEOPLE IGNORED IN 2007/8!

Image result for trump china trade warAnalysts caution that while investors have been pricing the risk of a trade war into shares of manufacturers, mining firms, home builders and others, they mostly have ignored the glaring risks associated with major tech companies, such as potential punitive measures that could affect Apple’s manufacturing in China or cost increases that could hurt Amazon’s e-commerce sales. That puts the S&P 500’s narrow leadership at risk of a sharp pullback if trade tensions reach a boiling point, similar to the swift correction that stocks suffered in February on worries about a potential pickup in inflation.  

Last night, China cancelled this week's trade negotiations with the Trump Administration and no further talks are scheduled as the US insisted on moving forward with $200Bn in additional tariffs that take effect today.  That makes it very doubtful there will be any resolution before the election as China has no reason not to wait and see if they will have more a more reasonable…
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PhilStockWorld September Portfolio Review (Members Only)

Image result for one million dollars animated gif$1,140,516!  

It's been two months since we did our July Portfolio Review as I was on a cruise in August and skipped that review and, in fact, we made very few changes to our portfolios over the summer but that didn't stop them from chugging along to fantastic gains.  Most of the changes we made were to get more bullish as, back in June, we cashed out a lot of our winning positions in an attempt to get more defensive into the summer.  

As we started the year with $500,000 in the Long-Term Portfolio and $100,000 in the Short-Term Portfolio to protect it with, we're getting very close to an overall double as we're already up $540,516 (90%) but our moves this month have once again led towards taking money off the table and adding more hedges and you may think that's being too defensive in this runaway bull market but it's the same thing we did in July, when we pressed our hedges and cashed in winners as well.

The thing about cashing in winners is, when you do it right, you also improve your losing positions and then, when they turn around, you can really turbo-charge your returns.  We benefitted this summer from a rising tide that lifted most ships over the summer – even the ones we had left on the bottom.  The S&P, for its part, is up just under 10% since the June dip as we keep waiting for the correction that never comes.  Still, that doesn't stop us from adding hedges in the Short-Term Portfolio to lock in these ill-gotten gains in the LTP:

Short-Term Portfolio Review (STP):  We added the AMZN shorts, but that's the only change since our 8/27 review, when we were at $225,802 and now we're at $232,125 which is up 132.1% for the year and up $6,323 for the month (6.3%) as our TSLA and AMZN shorts more than offset the losses from our hedges (and we cashed out AAPL too).     

Now we have $173,350 in CASH!!! and, as calculated last month, about $200,000 in protection for our LTP – which we only pray is going to…
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TGIF – Quad Witching Today, Window Dressing Next Week

China turned around this morning.  

It's funny because everyone thinks they are "winning" the trade war.  The Chinese Government is planning to cut tariffs on imports to their favored trading partners, which we assume will no longer include the US.  This will disadvantage US exporters to China and encourage Chinese firms and consumers to buy goods and services from other trading partners but it's also a nice tax break so it's boosting the Shanghai this morning, up 2.5% for the day at the close.  

Other than that, the news has been very quiet and we're expecting to drift along into the close today as it's a Quad Witching Day in which quarterly options and futures contracts expire (there are 4 kinds), which is often punchuated by high-volume (what is that?) moves and yesterday was already a busy day on SPY as we punched in a new high at 2,945 and we would have liked to short 2,950 but we'll take a cross below 2,940 on /ES to short that with tight stops:

Date Open High Low Close* Adj Close** Volume
Sep 20, 2018 292.64 293.94 291.24 293.58 293.58 100,288,900


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Thursday Failure – Shanghai Stocks Down 20% for the Year

Harmless trade war?

That's how the Conservatives are spinning it and many are drinking the Kool Aid and ignoring the stress and strain we are putting on the rest of the World – especially China, where the Shanghai Composite is officially a bear market, down 20% for the year and almost 50% off it's 2015 highs.  2015 was another crisis we ignored in China – until we had a "flash crash" in August and a proper 10% correction in the beginning of 2016 – even as China was "recovering" a bit.

When people tell you that what happens to the second largest economy in the World doesn't effect the largest economy in the World, those people are idiots and you should never listen to anything they say to you – ever again.  Jamie Dimon of JP Morgan, for his part, is doing his best to minimize the concerns of retail investors so he can keep dumping stocks on them:

"If you look at tariffs on $200 billion (worth of Chinese goods), and this may all get passed on to American consumers and they have to pay another $20 billion (on Chinese imports), it's a $20 trillion economy, so the actual economic effect is not dramatic," Dimon said.

"We can add tariffs to more things and the Chinese can retaliate in other ways and I don't think all that's good. It's not a devastating thing, it's not a war, it's a trade skirmish that can have negative economic effects."

Dimon is not going to say what happens in China has no effect but he's mimizing the impact and misleading traders by using the 10% figure that costs $20Bn but that 10% tariff escalates to 25% at the end of the year ($50Bn) and then Trump plans to double the number of goods that are taxed ($100Bn) so a smart reporter would ask Dimon – does $100Bn matter then?

You can nod your head and agree with Dimon (after all, he's a rich guy, so he…
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Will We Hold It Wednesday – S&P 2,915 Again

"Here come those tears again

Just when I was getting over you

Just when I was going to make it through

Baby here we stand again

Like we've been so many times before


Even though you looked so sure" – J Browne

While it's been fun watching the Dow 30 blast higher, the S&P 500 has been struggling to get back to where we were at the end of August when I warned on "Toppy Tuesday – S&P 2,900 so it’s 3,000 or Bust!" as well as "Will We Hold It Wednesday – Record Highs Edition" and we were shorting the S&P (/ES) Futures at 2,915 and we got another entry yesterday as we topped out at 2,917 just before 3pm.  

At the time, we were shorting Gasoline (/RB) at $2.10 and now it's $2, which was good for gains of $4,200 per contract if you rode it out all the way (we were in and out several times since) and we shorted Oil (/CL) at $70 (and we're short again now) and went long on Coffee (/KCN9) as it tested $100, which worked at the time but now it's down to $94 so a lot of things are not improving – including the Nasdaq, which is down from 7,700 to 7,500 (2.5%) while the S&P has bounced back.

As the song asks – what's different this time?  Aren't we just setting ourselves up for more heartache as we're teased yet again by the record highs?  I believe there's a better chance in profiting from a re-test of 2,860 (our 30% Line on the Big Chart) than there is of seeing 2,920 so it's a very nice risk/reward play as stopping out at 2,921 is a $300 per contract loss while 2,870 (which we hit last time) is a $2,500 per contract gain.  Futures trading is all about looking for risk/reward scenarios that are massively in your favor and then trying not to be wrong more than 80% of the time!  

 

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Tariffic Tuesday – Markets Ignore Another $200Bn Drag on Global Trade

Image result for tariff tax cartoonSo what?

$200Bn here, $200Bn there – after a while it might add up to something but investors only react AFTER something is a problem and these tariffs don't even take effect until next week (24th).  Our wise Negotiator-In-Chief has decided to hit China (ie. the suckers who voted for him and actually have to pay this tax) with a 10% tax on $200Bn worth of Chinese goods that are bought in the US and that tax will rise to 25% – taking another $30Bn out of the pockets of the poor so Trump can continue to give tax breaks to the rich.  

But $50Bn worth of taxes on US Consumers isn't going to be enough for President Trump and he also announced his intention to put another 25% tax on another $267Bn worth of Chinese Goods, costing the suckers who voted for him another $66.7Bn and that, plus the first $50Bn – balances the budget for Trump's $100Bn additional tax cut to himself, his family and his friends.

Of course, Trump has pushed most of the bite of these ridiculous taxes posing as tariffs out past the November elections because he knows he can baffle his base with BS for another 45 days and probably keep control of the Senate, which will make it difficult for the Democrats to roll back the tortures he is inflicting on the American people. 

As you can see from the cartoon above, at the start of the Great Depression – Trump is nothing more than Herbert Hoover in a new wrapper and history is repeating itself as another one-term President embroiled in non-stop corruption scandals takes a 10-year rally and turns it into an economic catastrophe that almost destroys the country (oops – spoilers!).  Interestingly, like Trump, Hoover also made his fortune through dealings with Russians!  

As was the case in the late 1920s, the markets are shaking off all the signs of a pending Global catastrophe and continuing to move higher, albeit on the lowest volumes we've seen this century.  You can see the "smart money" moving out of the market – even as it continues to make new highs but there are plenty of suckers still out
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