Which Way Wednesday – Expected Fed Cut Keeps us Above S&P 3,000 – for Now

Apple (AAPL) is up 3.5%, pre-market.

That's boosting the Nasdaq 0.7% but the Nasdaq (/NQ) is only up 0.4% pre-market and AAPL is up 8 points and that's 70 Dow points and the Dow (/YM) is only up 71 points so there's actually broad-market weakness in this morning's "rally" and the Fed is expected to cut rates by AT LEAST 0.25% this afternoon and, if they don't, there aren't enough Apples in the World to hold this market up.

But let's assume they do.  Then the question is:  Will it be enough to lift the markets higher or has all this Fed generosity already been priced in to the 2,500-point (10%) Dow rallly since June 1st?  AAPL is up (as of this morning's $215) $45 (26.5%) since June 1st so the market has not kept pace with its largest component by any measure.  That is, in large part, because earnings growth has slowed down tremendously since 2018 and would probably be negative if not for the continuation of the Trump Tax Cuts (and now they want to cut more Corporate Taxes!):

While there has been some improvement in Q2 earnings so far with 40% of the S&P 500 reporting – it's not the S&P 500 we're worried about but small-cap stocks that are facing cost pressures and companies that do more business overseas, where economies are definitely slowing.  In fact, the Eurozone's economy grew by just 0.2% in Q2 – just a tick above Recession and, adjusted for inflation – clearly in a recession.  Japan has made similar downward adjustments to their growth as well – and Singapore, and Hong Kong and – well, you get the picture…

Image result for trump fed rate cut cartoonThe ECB left their rates unchanged at last week's meeting but our beloved Commander in Chief has made it very clear that he will not tolerate any more responsible monetary decisions by our own Fed and he will get his rate cut or heads are gonna' roll

Meanwhile, while we wait for the Fed decision at 2pm and Powell's press conference at 2:30, we should reflect on the fact that the China Trade…
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Tumblin’ Tuesday – Monday’s Gains Quickly Reversed

So much for that "rally".

We call them "Meaningless" Mondays for a reason as nothing that happens on a Monday is any true indication of market direction – it's usually a low-volume affair that can be quickly reversed.  Yesterday's volume on the S&P ETF (SPY) was 37.8M, less than what we usually have on a half-day of holiday trading.   Volumes have been low for a long time as we topped out in the market and that's very scary as it indicates very weak support below the current prices.  

Things are especially meaningless ahead of the Fed, which is geared up to disappoint the markets unless they give us a 0.5% rate cut, more than reversing December's 0.25% hike that sent the S&P down to 2,346, which is now 22% below our current level.  If your stock is not earning 22% more than it was in November – then why would it not be able to fall back to that level just as quickly?  

Beyond Meat (BYND) has been a market darling since its IPO in May at $25 and yesterday, at $222, they annouced earnings that were fairly ordinary and certainly not indicative of a 1,000% run but it wasn't the earnings that took them down 13% to $193 – it was the announcement that they would be selling 250,000 additional shares to raise $56.5M and that the CEO would be able to sell 1% of his 3,177,922 shares for $8M with lock-ups waived for some of the other big pre-IPO Investors (yes, it's optional, not mandatory – a lockup provision is there to protect the underwriters, not the ordinary shareholders, so it can be waived at the underwriter's discretion).  

Keep in mind, despite their current valuation (not value!) of $13Bn, BYND's IPO only raised $240M by selling 9.6M (16.5%) of the 58.3M shares outstanding because they didn't know it was going to go to $240 in 3 months, did they?  So it's very rational, with the stock above $200, to raise some more cash and it's very rational for the people who originally invested in the company to want to take a little off the table.  It's not usual to change a lock-up period post-IPO, the lockup is sort of a promise made to new shareholders by original shareholders that…
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Monday Market Momentum Continues Ahead of the Fed

Image result for powell trump cartoonHow will July end?

It ends on Wednesday and Wednesday is Fed day and the FOMC announces their rate decision at 2pm, where a 0.25-0.5 cut is widely expected, followed by a speech by Jerome Powell at 2:30, where he pretends to explain why cuts were necessary for some other reason than to please the President.  Ahead of that circus, we have the Dallas Fed Manufacturing Survey this morning (10:30), Personal Income and Outlays tomorrow (8:30) along with the Redbook Sales (8:55), Case-Shiller (9:00), Consumer Confidence and Pending Home Sales (10:00). 

On Wednesday morning we have MBA Mortgage Applications at 7am, ADP at 8:15, Employment Cost Index (8:30), Chicago PMI (9:45), State Street Investor Confidence (10:00) and Petroleum Status at 10:30.  Those are the last data-points that are going to influence the Fed ahead of their "decision" and, of course, there will be hundreds of earnings reports highlighted by the following:

Image

So that's the set-up but the outcome seems to be a given as we no longer have a data-driven Fed but a politically-driven one and no one seems concerned that the independence of the Federal Reserve has been a cornerstone of our economic stability since the Great Depression.  While we certainly have our issues with what is essentially a banking cartel operating under the guise of a Government entity – at least they were independent of the White House and ANY kind of check against Presidential over-reach would be welcome these days – as we have very few left – and now the Fed has given up and is about to lower rates when a hike would be more appropriate.  That's just crazy! 

Related imageWith interest rates near their lower band, a key transmission channel of unconventional monetary policies – quantitative easing, yield curve control and forward guidance – has been to entice investors to take greater risk and hunt for yield outside of the traditional investment-grade bond market. This has inflated stock valuations, made junk bond yield look like investment-grade, and increased housing prices in major cities where real estate is a prized possession. All of
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Philstockworld July Portfolio Review (Members Only)

Image result for one million dollars animated gif$2,285,000!  

That's up a very healthy $191,432 from our Mid-Year Review just 3 weeks ago so I guess we're positioned a bit more bullish than we thought though we have added to our hedges since then.  There was also a bit of a bounce back as that review had us down $40,487 from the June Review but we knew that was simply a poor time to take a snapshot and was likely to come back on its own.  Actually, to check in (since these reviews were as of around July 19th) as of Friday our main, paired portfolios were at $1,598,911 on the LTP and $703,510 on the STP for a grand total of $2,302,421 so up another $17,421 with the S&P up very slightly means we're still a little bit net bullish, which means, next week, we'll lean towards finding some downside plays as we want to be very neutral into the Fed Meeting on Wednesday

In perspective, $191,432 is only up 9.1% for the month and that's about what our audited Hedge Fund did so, on the whole, we simply did a good job of caputring a 3% up move in the S&P getting our usual leverage from our option positions.  Once again, I want to emphasize our very important strategy of LEAVING YOUR POSITIONS ALONE (for the most part) as we only adjusted 8 of 80 positions in the Long-Term Portfolio in our last reveiw and mostly that was just housekeeping as July puts and calls expired and had to be swapped out for longer-term ones (Sept or Jan).

As we began 18 months ago with $500,000 in the Long-Term Portfolio and $100,000 in the Short-Term Portfolio, we're up combined $1,685,000 (280%) while our more conservative Options Opportunity Portfolio has gone from $100,000 to $336,374 (up 236%) and even the restricted Money Talk Portfolio has gone from $50,000 to $136,583, which is up 173% while the Butterfly Portfolio, which is not meant to make too much money (or lose it) is up from $100,000 to $187,736, which is up 85% over the same period.  

We just began our Hemp Boca Portfolio with $50,000 (see our Virtual Portfolio tab for all of them) and that's at $52,923 (up 6%) after two months…
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Fantastic Friday – Google Gains $75Bn Overnight

$75Bn!

That's how much the market cap of Google (GOOG) gained overnight in a 10% run that brings their market cap to $860Bn and back in contention for the Trillion Dolllar Club.  There are only 30 S&P 500 companies valued at more than $75Bn:  GE (GE) is only $92Bn, Caterpillar (CAT) is $75.8Bn and CVS (CVS) is $72Bn so, essentially, GOOG added an entire blue chip to their valuation in overnight trading.  

Did $75Bn pour into the company?  No, not at all, the overnight trading is very thin with less than 500,000 shares trading and, even at $1,200 per share and even if every transaction were a buy and not a sell, that's only $600M of inflows yet the stock shows that investors gained over 100 times that amount.  That's one of the great illusions of the stock market, the APPARENT valuation of these companies has very little to do with actual money flows – it's more like an auction where whatever crazy price the last person bids on the last share sold becomes the price of hundreds of millions of other shares – regardless of whether there is actually demand for them or not.

Google's advertising revenue growth accelerated in the second quarter of 2019, after decelerating in each quarter since the second quarter of 2018. (David Foster/Yahoo Finance)We take advantage of this foolishness all the time in our options plays, where mispricings occur daily and I'm certainly not saying that Google, with their $60 per share in annualized earnings, don't deserve a $1,200 (20x) valuation – it's just that is certainly didn't really generate that kind of interest yet and it's a good example of how many, many stocks in this market are severely overpriced – having risen to all-time highs on very thin trading which povides very little support should sentiment ever turn negative.

This morning we're going to get our first look at Q2's GDP, which is expected to come in at 1.8% and that's down 42% from Q1s 3.1% growth rate – a very significant slow-down.  The Atlanta Fed's GDPNow forecast, in fact, has lowered their projections for Q2 down to 1.3%  – quite a bit lower than leading economorons and the market will not likely take…
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Thrilling Thursday – Mueller Fails and Draghi Disappoints

Image result for trump shoot 5th avenue cartoonAre we there yet?

The Futures were signaling peak euphoria as the Democrats failed to nail Donald Trump (as usual) despite 37 indictments of the people around him.  Mueller's testimony was a huge disappointment as he stuck to the letter of the report (as directed to by Barr) so there were no big reveals to move the needle forward on Trump's corruption.  Though there are still 5 open investigations, no one is in the mood to even talk about them after 2 years of Mueller came to nothing other than a certaintly that Russia massively intervened in the US elections to make Donald Trump President and 10 instances in which the President then obstructed the investigation into the Russian interference.  You know, no big deal and we should all drop it because there wasn't a smoking gun.

As the President said: "I could shoot someone right on 5th Avenue and they couldn't convict me."  Turns out he wasn't just bragging.  

Obviously, the markets were pleased to not have the turmoil of an impeachment as it seems unlikely now that the Democrats have enough ammunition – or the will – to go down that road when the election is only 16 months away.  There's certainly enough evidence out there to show what Trump did and the election will come down to a question of whether or not Americans care if they have a Russian-backed leader who flaunts the laws of the land.  As long as the economy stays strong – why change horses, right?

The ECB is about to change horses as Draghi holds his last press conference but they surprisingly held rates steady, despite all rhetoric to the contrarcy and that's spooking the markets, which were up sharply ahead of the decision.  If the ECB isn't lowering rates, maybe our Fed won't lower rates next week either and without lower rates – how will the economy survive?  I mean really, is this what we've come to?

Despite leaving rates unchanged, Draghi did say that they expect rates to remain at the current level AT LEAST through the first half of 2020.  10-year notes in Europe currently yield 0% and, taking into account transaction fees AND…
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Which Way Wednesday – It’s Mueller Time!

Image result for doonesbury guilty guilty guiltyPolitics!

Do they really matter?  Like Willaim Barr, John Mitchell was Richard Nixon's Attorney General and, like Barr, Mitchell did whatever it took to keep his boss out of jail – making the cover-up worse than the crime and leading to the eventual impeachment of President Nixon, who resigned to avoid the disgrace of having what he did revealed to the American people.

Not only did that process take a long time but Nixon was re-elected during it.  The Watergate Break-In happened on Sept 3rd, 1971 and Nixon was re-elected in a landslide a year later and then there were years of cover-up and posturing before 7 of Nixon's co-conspirators, including his loyal Attoney General Mitchell, were indicted on March 4th, 1974 and it was still not until August when Nixon finally resigned, a full month after the House voted to impeach him.  

That's about 3 years, the same 3 years Trump has had only the GOP has controlled the House and Senate until just this January so there hasn't been a proper investigation and the results of the Mueller Investigation have been buried (and redacted) so today is a very important day for the President and the AG.  One thing the President learned from Nixon is not to tape anything – Trump doesn't even let WH staff take mandated official records when he reports to Putin – that's smart.

So how are we going to nail this guy?  We probably won't but, unlike Nixon, the Democrats hope to at least make the case to the American people that Trump should not be given another 4 years and, if that works, they can set about undoing the damage Trump has already done in less than 3 years (so far).  This is likely to be an important and frustrating day in American History as nothing will really be accomplished today – but at least it will help draw the battle lines for 2020.

Market-wise, we're sitting right on that 3,000 line on the S&P this morning as the Futures have dropped overnight, giving up about half of yesterday's gains.  Mueller is testifying at 8:30 and…
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Tuesday: Testing S&P 3,000 (again)

Image result for mr 3,0005%.

That's all we're up from when the S&P 500 hit 2,850 back in Jan of 2018.  That was 548 days ago and we're struggling to go up a full 150 points so it's very important to keep this "rally" in perspective and not use it as an excuse to overpay for stocks, just because we're in "record high" territory.  

Just this morning we got great earnings reports from Whirlpool (WHR), who we have in our Long-Term Portfolio along with Lockheed-Martin (LMT) and United Technologies (UTX), both of which are still excellent value plays.  There are plenty of good values out there – especially in the Retail and REIT spaces so, if this rally is real and if we're going to leave 3,000 in the dust – I'd rather play the value stocks to catch up than the momentum stocks to keep going.

We reviewed our portfolios last week and we pretty much decided to let everything run but we do have a ton of hedges – just in case they don't.  We could make more money being more aggressively long but I'd rather be able to sleep at night, thank you very much.  It's a big week with 144 of the S&P 500 companies reporting and 10 of 30 Dow components report with KO, BA, CAT, MCD and V still on deck.  Also, tomorrow is Mueller time though Trump's New Attorney General, Barr, has already put a muzzle on Mueller, directing him not to discuss anything that hasn't already been revealed in the report – not even the redacted items.  

Image result for mueller testimony cartoonThe Justice Department is “taking the position that anything outside the written pages of the report are things about which presidential privilege hasn’t been waived,” the former U.S. official said.  That, in and of itself, is obstruction of justice but only the Attorney General can bring those charges – and he's the one doing the obstructing!  Trump invoked the broad privilege claim just minutes before the committee voted to hold Barr in contempt of Congress   

We can certainly expect chaos in Congress into the weekend but they do seem to have agreed to a spending bill that will allow the Government to go $25Tn into debt to avoid a shutdown so Yay!, I guess

 

 

IN PROGRESS

 

 

Just Another Manic Monday

We're waiting on the Fed

The problem is the Fed is having their policy meeting a week from Wednesday and the Fed is entering their quiet period, where they refreain from talking about the markets so we will lose the Fed's talking support for the next week as well – what's going to keep us over 3,000 without endless promises of more Fed easing?  Well, we don't really have to worry about that as we're not over 3,000 anymore anyway – so the pressure is somewhat off though it will now be very easy for us to slip into a bit of a downtrend – in the absence of "good" news.  

We do, of course, have plenty of earnings reports this week, including WHR tonight, CMG tomorrow, BA, T, FB and TSLA on Wednesday, AMZN and GOOGL on Thursday and TWTR and MCD on Thursday – that and about 300 other reports to chew over for the week and not too much data to distract us until Durable Goods on Thursday and GDP on Friday:

All in all, this is a bad lack of news for the President, as we will be finally hearing delayed testimony from Robert Mueller on Wednesday, in what will be telivised testimony to two House Committees, who look for clarity regarding statements made by the Special Investigator in his April Report (yes, it was 4 months ago!).  Democratic House Judiciary Committee Chairman Jerry Nadler on Sunday argued that there was "very substantial evidence" the President was guilty of "high crimes and misdemeanors" — the Constitutional standard for impeachment.  

A CNN poll last month found that 76% of Democrats back the idea of impeaching Trump. But 54% of Americans overall oppose the idea.  Trump, who has claimed he will not watch the testimony, tweeted simply on Sunday: "Presidential Harassment!"  "If we had confidence that the President clearly did not commit a crime, we would have said that," Mueller said. That statement may provide the starting point for many of the questions from Democrats.

Image result for trump russia cartoonOn the whole, expect to see the usual
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Federally Funded Friday – Rally Continues on Rate Cut Expectations

I hope I get it!  

That's the chorus line the market pundits are taking this week and the Fed speakers have given them plenty of ammunition with Vice Chairman Clarida and New York's Williams making more doveish comments yesterday, which sent the indexes flying higher into the close and pushing the S&P 500 back over that critical 3,000 mark so it will look pretty for the weekend.  

Since the data certainly isn't supporting a rate cut the Fed has now turned to fortune-telling to justify doing Trump's bidding:  

“You don’t need to wait until things get so bad to have a dramatic series of rate cuts,” Clarida told Fox Business Network, citing economic research. “We need to make a decision based on where we think the economy may be heading and, importantly, where the risks to the economy are lined up.”

Clarida’s remarks line up with testimony last week by Fed Chairman Jerome Powell, and comments a bit earlier in the day from Williams, that have cemented expectations for a rate cut. Investors, weighing their words, increased betsThursday that the Fed will move by a half point at the July 31st meeting.  While the U.S. economy is “in a good place,” Clarida said recent global economic data have been softer than expected. “We’ve had mixed data, but I do think the global data has been disappointing on the downside,” he said. “Disinflationary pressures, if anything, are more intense than I thought six weeks ago.”

Lowering rates 0.5% with the market at record highs and the unemployment rate below 3% is unprecidented and very probably insane but that is what the market is now expecting a week from Wednesday.  

 

IN PROGRESS