Marked-Up Monday – End of Quarter Window Dressing

chartIt's the last quarter of the decade! 

That's right, we've already gotten through the first two decades of the 21st Century without destroying the planet.  Unfortunately, the odds are getting a lot higher against us for decades 3 and 4 and by 5 we're a long-shot to finish – so it's a good time to check off that bucket list…

As you can see from JP Morgan's S&P 500 Chart (click for a bigger version), the poor RSI line (bottom) liikes tired and we're pretty well set-up for a repeat of last October if things don't improve but certainly we can Unimpeach Trump, Make a Deal With China, Have a Happy Brexit, Bring Peace to the Middle East, Resolve the Hong Kong Protests and reverse Japan's Aging Problem by Christmas – heck, I bet Jared Kushner can get that all done by Hanukkah!  

hong kong protest

Speakiing of Jared Kushner, here he is burning evidence over the weekend…  Just kidding, he's in Hong Kong, still protesting the Government and, at this point, we need to consider that nothing is going to make the Hong Kong protesters happy so what will happen next?  China is celebrating their 70th Anniversary tomorro and they are trying not to have it stained with blood so they've been very restrained but the streets of Hong Kong are literally on fire and they will be forced to respond in the very near future. 

Default alt textThis is week 17 and 1,753 protesters have been arrested and 4 have died (but all ruled suicides) and the police have used 2,731 cannisters of tear gas (I wonder who make that?) but demonstrations have gotten worse, not better and many protestors have sworn to die rather than surrender though, frankly, it's not very clear what it is they actually want.

It's become kind of a protest for protest's sake.  Origninally, the protests were against having Hong Kong citizens extradited to China for trials – that's something I would have protested too but Hong Kong withdrew that bill and the protesters won but now they want "More Democracy" and, as Americans, we're not really qualified to say what that even is anymore.  

To a large extent, the problem…
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S&P 3,000 Friday – Windows Must be Dressed!

And we're back (again).  

As we expected, the stops are being pulled out to give us a boost into the end of the quarter and we still have the Fed's Randy Quarles speaking at 8:30 followed by Patrick Harket at noon in order to buffer what's likely to be a poor Durable Goods Report at 8:30 and a poor Consumer Sentiment Report at 10.  We also get the Farm Price Report at 3pm and the China situation doesn't bode well for that.  We also still have Monday, that's the 30th.

Not that we care because we CASHED OUT last week – but it's still fun to watch from the (mostly) sidelines.  President Trump considers the stock market to be some kind of scorecard for his Presidency the same way frat boys count how many girls they slept with and call it their "love life".  Still, that means that, behind closed doors, Team Trump is doing whatever they can to boost the market so the boss can feel good about himself – despite all the things he should be feeling bad about.

Yes, despite all the spin, this isn't the Mueller Report and Trump is still getting impeached because this is a very simple, 9-page document that very clearly outlines a single, impeachable offense and so, despite Team Trump's protestations – there WILL be an impeachment though it's still doubtful the Senate will have 60 votes needed to actually remove Trump from office – but the elections will do that.

That's why the Health Care ETF (XLV) is taking a downturn – on fears of a Warren Presidency as it's not likely she will take a kind eye towards excessive profits in the Pharma space but this is a bit of a replay of late 2009, when we took advantage of the sell-off ahead of Obama's first term and the coming of Obamacare to pick some very successful health care plays (see my "2010 Outlook – A Tale of Two Economies") – so I recommend a re-read and we'll update some of the picks on our new Watch List.

Related imageIt's not all bad…
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Thrilling Thursday – Back to Test S&P 3,000 – Again

"Come easy, go easy
All right until the rising sun
I'm calling all the shots tonight
I'm like a loaded gun
I'm back in the saddle again"
- Aerosmith

And we're back.

Right back to S&P 3,000 as the S&P gains 7 points in pre-market trading – more so on China Trade Progress than Trump's Impeachment, which is a truly quantum political event as he is at the same time guilty and not guilty – depending on who is observing his exact same actions.  Here's some stuff we've been reading on the subject:

I threw that last one in there to remind us that the planet is dying and we're wasting time worrying about whether or not Trump might be lying about…
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What Now Wednesday – Will 10 Fed Speakers Stop the Slide?

Image result for trump impeach cartoonWheeeee – it's so much fun to watch this from the sidelines!

Last Wednesday I listed Impeachment as one of the reasons we were cashing out our portfolios as the market went back to the top and BOY are we happy we did that!  Impeachment is a pretty big uncertainty to throw at the market and the expectation of that (which came to pass yesterday) along with all the other issues we saw looming for Q4 gave us good reason to get to CASH!!! and see where things land during the final earnings season for the year.

We also didn't believe China was "fixed" and apparently it is not though now the pressure is on Trump to pull that rabbit out of his hat in order to distract people from all the other scandals he's drowing in – just like Nixon did when he opened relations with China in February, 1972 – ahead of his own re-election campaign.  The Committee to RE-Elect the President (or CREEP) didn't break into the Watergate hotel until June of 1972 and it took all the way until July 27th of 1974 for there to finally be an impeachment hearing and Nixon resigned on August 9th, 1974, leading to two glorious years of Gerald Ford, which made Chevy Chase's career.

So it's going to be chaos for the next few weeks but don't worry, we have TEN (10) Fed speaches to guide us through the rest of the week, starting with Chicago's Charlie Evans, who already said this morning that not only is trade policy uncertainty slowing U.S. business investment decisions, limits on trade and immigration could mean slower potential economic growth overall.  Evans supports more rate cuts and seems to be preparing us for a weak GDP Report tomorrow morning – possibly below 2%.

This is the 3rd revision of Q2, which started off closer to 3% (and the markets went higher on that BS) but was revised down dramatiallly as Residential Fixed Investment (includes Durable Goods) declined 2.9% and state and local Government Spending was revised down to 2.3% from 3.2% while net exports dropped 0.72%.  Only Consumer Spending was a bright spot and we just got a TERRIBLE Consumer Confidence Report…
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Toppy Tuesday (as usual) – Why Did China Go Home?

Trade on!  

That's right, now Donald Trump claims he was "surprised" when Treasury Secretary Steve Mnuchin asked China's trade delegation to cancel a scheduled US Farm Tour.  That was the cause of Friday's sell-off as the Chinese delegation packed up their toys and went home early and was taken as a sing that negotiations had broken down but now the Administration says that's not the case and that the Chinese were rushed home so they could buy our agricultural products rather than visiting the farms first.  

Despite all the BS, we couldn't be more thrilled as we called Soybeans (/ZSU19) Sept Futures a long way back in our May 10th Morning Report at $825 (published at Seeking Alpha) and those contracts popped to 888.50 and October Soybean contracts are now $895.50.  Soybean contracts pay $1,120 per $1 move so $63.50 for our September longs is a lovely $71,210 gain per contractyou're welcome!  

For the Futures Impaired, we also had the following trade idea on the Soybean ETF (SOYB) that runs into November:

As to SOYB, it hasn't been this low since, well, ever – as the contract began in 2012 at $25 and never really went below $17.50 until the trade war began so $14.50 is quite a bargain and, as much as I hate to bet on Trump doing anything right, it's POSSIBLE we get a trade deal and that will hurt our hedges in the Short-Term Portfolio so, in order to hedge the hedges, a bullish bet on SOYB makes sense.  For the STP, we can:

  • Buy 50 Nov $14 calls for $1.10 ($5,500) 
  • Sell 50 Nov $15 puts for 0.95 ($4,750) 

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Just Another Manic Monday – More Signs of Global Slowing Amid China Troubles

Related imageLet's see what kind of trouble the World got into over the weekend:

So it's the same old, same old but, fortunately, we don't care because we CASHED OUT almost all of our positions last week and now we've got ringside seats for Q4, which starts in a week – it's going to be FUN!

It's not that we're particularly short on the markets – we aren't making many short bets – it's just that we've lost faith in the bullish premise and we do expect a correction but, the way the Fed and the Trump Adminstration rush in to prop up every dip in the markets – we're certainly not ready to make a bear case.  

Image result for halloween scary economy cartoonThe same cannot be said for our friend David Rosenberg, who expects a PAINFUL pullback in the next 12 months EVEN if the Fed were to cut rates to ZERO.  “The economy is already slowing down,” Rosenberg said. “Earnings are actually contracting.”  Well Duh!, Dave – we've been talking about that for ages.  The question is – will it MATTER?  Back in 2007, I used to call it the "It Just Doesn't Matter" rally as the market just seemed to ignore any bad news and go higher and higher – no matter what was thrown at it until, suddenly, in the fall of 2008 – EVERYTHING started to matter and all the good news in…
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TGIF – Quad Witching Madness

I love CASH!!! 

We cashed in most of our Member Portfolios so I'm not at all worried about what will happen today.  It's the end of the quarter for options and Futures (2 kinds of each) so "quad witching" and these days can have some violent swings – though we're not expecting anything dire.  We still thought it was a good idea to take advantage of this triple market top – JUST in case Q 4 Earnings don't go well or the Trade Talks don't go well or Brexit doesn't go well, etc.

Just because we moved to CASH!!! doesn't mean we can't still find fun things to trade.  We've been watching McDermott (MDR) collapse for the last few days and yesterday morning, I sent a Top Trade Alert out to our Members saying:

MDR – Fortunately, we got out of ours a long time ago as we never wanted them, we just liked CBI, who they merged with.  Needless to say, the merger has not gone well (which is why we didn't want to ride it out) and now they are calling in restructuring experts.  MDR says it "is taking positive and proactive measures, as we have done in the past, intended to improve its capital structure and the long-term health of its balance sheet."   You can take them at their word (as no one is) or you can imagine this is a sort of cover-up for their emergency measures to stave off some sort of disaster that's looming.

I do watch them (because they took away my CBI) and last year they took a $2.7Bn hit on write-offs and such and this year they lost about $190M in the first two Qs and it's doubtful they turn that around by the end of the year but they have $455M in cash and I bet they end up down less than $100M for the year with a profit in Q4.  

Assuming that's true – then

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Federally Funded 3,000 Thursday

Here we are again! 

As we expected, the Fed cut rates another 0.25% yesterday after changing just 15 words from their last statement, essentially indicating that Business Spending has slowed down to justify the completely unneccessary cut.  “We took this step to help keep the U.S. economy strong in the face of some notable developments and to provide insurance against ongoing risks,” Powell told reporters. So, apparently, we've gone from a "data-dependent" Fed to one that now uses psychic powers to react to trouble before it even happens?  

Powell said “Weakness in global growth and trade policy have weighed on the economy” but does that mean he will RAISE rates if Trump makes a deal with China?  Powell can't win so he shouldn't try to please Trump, who immediately tweeted about the Fed Chairman:  “No ‘guts,’ no sense, no vision!” for not giving the President the negative rates he demanded just last week.

Powell left the door open to “a more extensive sequences of cuts” if needed, but stressed this was not what officials expect. Instead, he described the situation as one “which can be addressed and should be addressed with moderate adjustments to the federal funds rate.”  Updated quarterly forecasts showed officials split over the need for rate cuts this year. Five didn’t want to move. Five saw a quarter-point reduction warranted, while seven saw 50 basis points of easing needed by year-end — half of which was delivered on Wednesday.

As you can see from the Fed's projections, we're wrapping up Trump's Presidency (hopefully!) with barely 2% GDP growth and an uptick in unemployment while the fiction of low inflation is being maintained and keep in mind that if inflation is 2% and the economy is growing 2% – then the economy isn't growing at all – things are just getting more expensive while we produce the same amount of stuff.  To some extent, that's to be expected in a mature economy but we do have 1% population growth so really 3% growth with 2% inflation should be the minimum we shoot for.

I discussed the Fed and the overall economy with Kim Parlee on Money Talk last night, so here's that segment:

Given all those concerns, as we noted in…
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Which Way Wednesday – Fed Edition


That is our response to market uncertainty and we are officially cashing out our Money Talk Portfolio after a very successful 2-year run where we've taken it from a $50,000 start to $124,043, which is up a whopping 148%.  I'll be on BNN's Money Talk Show later this evening to discuss the matter but, in short – it's simply too hard to protect those gains against all the market uncertainty regarding the Fed, Trade, Brexit, the Middle East, Election Interference, Impeachment, Overpriced Stocks & Indexes and, of course, a slowing Global Economy.  While the market is, so far, content to "soar and ignore" – I don't think we have more than 10% left in the best of circumstances while the risk is a 20% drop – so I'd rather sit this quarter out.

Of course "sitting out" doesn't mean we won't still find things to trade – I just want to get a clean start in 2020 and I don't want to risk what we've made in the last quarter of 2019.  We also reviewed our Hemp Boca Portfolio yesterday morning in our Live Member Chat Room and, though it's only 4 months old and only up 8.2% so far, we reduced our risk on that one as well.  One difference is I'm on the Hemp Boca show at least once a month to make adjustments but only on Money Talk once a quarter and, between now and January – I really can't condone the risk of holding positions without the ability to make changes!  

Our Butterfly Portfolio is market neutral and self-hedging so we simply removed some of the riskier plays but the Options Opportunity Portfolio, which is now up almost 300% in less than two years is going to be completely closed down, as will the Long-Term Portfolio and the Short-Term Portfolio that protects it.  As with our Hemp Boca Portfolio, I will be highlighting those trades I think are worthy of keeping but, for the purposes of our educational porfolios – I think there's more to be gained next year starting with a clean slate so we can emphasize portfolio building strategies and stock picking.

Here's our Hemp Boca Review from yesterday's Live Member Chat Room:
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The Money Talk Portfolio Review – Sept 18, 2019

I'll be on BNN's (Bloomberg Canada) Money Talk tonight at 7pm.  

The last time I was on the show was back in on April 24th and we only make changes to the Money Talk Portfolio live on the show so we decided to lock into a neutral position over the summer and that's just where we ended up, dropping to $124,043 from April's $127,663 so down $3,620 for the summer is about as neutral as we can get it and we're still up $74,043 (148%) from our $50,000 start just about 2 years ago on the button.  

Since there's a lot of uncertainty going into Q4 and it has been just about 2 years – I think this is a good time to cash out this portfolio and we will begin a new portfolio with a new $50,000 around Thanksgiving – beginning with our still-undecided Stock of the Year.  

Our 2019 Stock of the Year is IBM (IBM) and our IBM position is already 100% in the money at net $2,707 out of a potential $7,500 so, if I were going to keep one trade active – that would be the one as all IBM has to do between now and January of 2021 is hold $135 and that spread will make another $4,793 (177%) so we could, for example, put $27,070 of our $124,043 in cash back to work on just the IBM trade and, if all goes well, it will turn into $75,000 – making almost 100% of our original total in just over a year – so why be more complicated than that?

There's still a lot of potential in all these positions, as noted in the April review, the portfolio has the potential to hit over $200,000 by Jan 2020 but, as I noted, if we cash out now at $124,043 and make another $50,000 on the IBM trade – that's $174,000(ish) anyway but we'd have $100,000 in our pockets NOT at risk through the holidays – that is certainly a much wiser way to go – especially in a portfolio we are unable to adjust between shows.  

So the decision is final, we're cashing out and endorsing our Stock of…
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