Terminal Tuesday – Ending the Decade With a Bang

Protesters and militia fighters gather outside the U.S. Embassy in Baghdad.Happy New Year!

Unfortunately, we may be at war again as President Trump blamed Iran after supporters of an Iran-backed militia tried to storm the U.S. Embassy in the Iraqi capital Tuesday, in an intensifying backlash against the U.S. after it conducted deadly strikes on the group.  Video and photos from the scene showed the blast walls surrounding the compound were on fire and one man took a hammer to the window of a booth used by embassy guards. Another booth was torched. The protesters chanted “America out, out! Baghdad remains free!

The U.S. conducted strikes on Kataib Hezbollah near the Iraq-Syria border on Sunday, killing 27 people, according to the group and security officials.  Supporters of the group gathered to mourn and denounce the deaths on Tuesday and later marched toward one of the bridges leading to the so-called Green Zone, the heavily fortified area where the U.S. Embassy is located.

The attack, the most forceful move yet by the U.S. to target Iran-backed militias, represents a fresh escalation of tensions between the U.S. and Iran and undermines relations between Washington and Baghdad.  It drew condemnation from across the political spectrum including Iraq’s most influential Shiite cleric Ayatollah Ali al-Sistani, and revived calls for the departure of American forces, which returned to Iraq in 2014 to help fight Islamic State.

Meanwhile, the Iraqi government said Monday the U.S. strikes would force Baghdad to review its relationship with the U.S.-led coalition, including cooperation on security.  Kataib Hezbollah, a Shiite paramilitary group, on Monday threatened retaliation for the “aggression of evil American ravens.” Iran denied involvement.

It has long been speculated that Trump would start a war ahead of the election and this one has the dual purpose of also rescuing oil prices, which had been struggling to hold $60 and damaging the profits of Trump's Saudi backers as well as, of course, Vladimir Putin.  WTIC (/CL) is at $61 at the moment and makes a fun, speculative long play or we could play the Oil ETF (USO) at $12.75 to pop up on trade tensions as follows:

  • Buy 50 USO Jan $12 calls for 0.55 ($2,750) 

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Monday Market Musings – Winding Down 2019

Yes, I'm still in Thailand.

In fact, this is going to be a very short post as our 8am meeting went until 2pm and now we go back at 5pm, which is 5am for you guys so I'll be out (most likely) at the open.  It's all very exciting stuff but we're working on an entire country so many, many, many meetings every day – even as the holiday approaches.   

Anyway, I hope your holidays are going well.  It doesn't seem like there's too mch market movement as we head into the open and, even if there were, the volume is a total joke and shouldn't be taken seriously, regardless.  The problem with Christmas/New Years is that even the regular reporters are on vacation so, even if something were happening – would we know about it?

Not very much seems to be happening in the rest of the world as most people have better things to do than rock the proverbial boat this time of year.  Even in Seeking Alpha's News Feed – there are less than a dozen items since Friday's market close as of the first (and only at 4am, EST) item of this morning.  That means it has been a good week to be away (so far) and tomorrow is a short session and Wednesday the markets are closed.  

The Dollar remains weak and that has been market supportive but 96.50 should be bouncy back to 97 and that's going to put some downside pressure on things today and tomorrow – so be careful watching that.  Otherwise – very, very boring and hopefully it will stay that way through the week.  

You would think there is not much data in a holiday week like this but there is:   We have Retail Inventories, Home Sales and the Dallas Fed this morning, Case-Shiller, Housing Prices, Chicago PMI and Consumer Confidence tomorrow, PMI and Fed Minutes on Thursday and then Motor Vehicle Sales, ISM and Construction Spending on Friday.  Even with nothing on Wednesday – that's a full week of data. 

There are no major earnings scheduled this week but we get back into the swing of things next week and here's a nice look at the
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The Post-Christmas Post

Image result for thailand you are here mapGreetings from Thailand! 

I'm on the other side of the World working to finalize a deal for PSW Investments and two of our Investment Projects:  Hemp Boca (a CBD company) and New Age (manufacturer of Jade House Genetics THC products) to help create a Hemp and Cannabis Farming Industry in Thailand.  It's a huge project and I just got here this morning, which was last night for most of you and now it's 8am, EST and 8pm in Thailand and I already over-napped from trying to be up at 7.

Also, I have to be up at 3am to catch a 5am flight north from Bangkok up to farm country and that's only 7 hours from now and then I have 2 very full days of meetings so I'm going to be realistic and say that this is the post that is going to cover both Thursday and Friday's markets and I will try to catch up in the Live Member Chat Room but, for the next week – your "live" and my "live" are happening at very different times of day – so bear with me…

Not much has happened since Christmas Eve and the time between Christmas and New Year's is notoriously the slowest market week of the year.  Only 20M shares traded on the S&P Index (SPY) on Tuesday, the lowest level of the year, so we can't draw any conclusions from the trading action, which has generally been flat since Dec 20th at 3,230 on the SPX (/ES Futures).

Before that we were flat since the 16th and, before that, flat since the 9th so it's been 3 flat weeks in a row on the S&P 500 yet we've gained 100 points (3%) thanks to one big surge on the 12th and another one on the 20th.  Other than that – flat!  That's an entire month's "rally" that actually has very little support should the markets decide to pull back once the volume returns in a couple of weeks. 

So we're still approaching the market with a bit of caution and Asia was pretty flat today, waiting for the US to open and
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Secret Santa’s Inflation Hedges for 2020

Merry Christmas!

I hope you get everything you want this holiday season and, most importantly, I hope you have time to spend with your family.  I love waiting for my kids to wake up on Christmas morning to come out of their rooms so I can videotape (gosh I’m old, there’s no tape anymore) them in those first moments of Christmas morning – how can I not be of good cheer anticipating that?

I have something I can give you for the holidays as well.  Not peace on Earth but perhaps peace of mind heading into the New Year – a way to help insure some future prosperity with a few inflation-fighting stock picks that can brighten up your portfolio, which also can be used to help balance your home's budget against unexpected cost increases.  

We haven't had much inflation recently but the Fed is probably done easing and, if the economy is doing anything to justify the stock market's enthusiasm, then pricing pressure may be right around the corner as well.  If not, we can still pick solid stocks with sensible option spreads that will give us both leverage and protection that can perform well – even if the underlying position isn't boosted by inflation.

This isn’t an options seminar or one about risk or leverage – these are just a few practical ideas you can use to hedge against inflation as it may affect your everyday life using basic industry ETFs and some simple hedging strategies to give you an opportunity to stay ahead of the markets if they keep going higher. 

As you can see from the chart above, we haven't actually had much inflation in the last few years, which is why we haven't felt the need for Secret Santa Hedges since 2017 but, because we practice our strategy of "Being the House – NOT the Gambler", we don't ASSUME that next year will be like the last so, going forward, I like the following hedges:

Idea #1 – General Inflation Hedging with Gold

The Dollar
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Monday Market Momentum – On the Road to 3,300

Image result for china trade deal cartoonThe momentum is still going.  

It's still about trade as the Trump and Xi have figured out that the more they drag this on, the more the markets seem to like it.  This weekend, China said it would cut tariffs for Frozen Pork, Pharmeceuticals and some High-Tech Components as another step in the Trade Talks.  Of course China is cutting tariffs with 23 other countries that are in the China Free Trade Agreement as well but the US not being excluded is a nice touch.  

“If we cut tariffs only for the U.S., a lot of other countries would complain,” says Wang Huiyao, founder of Beijing-based think tank Center for China and Globalization, or CCG. “This is for China to answer their concerns and support open trade. China will not be criticized for being one-sided to the U.S.”

Still, that doesn't matter to US traders, who have 3,300 Fever for the S&P 500 and that should be getting close to Dow 29,000 so we can all get 30,000 Fever in Q1 as well.  We're still short on details but the US and China are supposed to sign their "Phase 1" deal in "early January" – so we have that to look forward too and I'm sure the markets will leap higher on that "news" as well.

As we get close to closing out the Decade it's amazing to think they S&P 500 was at 666 in March of 2009 and 333 is just under 5 TIMES that level – a gain of 395% for the decade and, more importantly, more than double our pre-crash high of 1,500 – which was also the pre-crash high of 2,000.  Both of those times, the S&P 500 was projected to keep going higher and both of those times it crashed more than 50% because, after all, what is the price of a stock other than a story people seem to like – for the moment?

As you can see on this monthly chart, we're up 50% in just three years AFTER more than fully recovering from the crash so, if we were irrationally exuberant then – I can't imagine
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PhilStockWorld December Portfolio Review

Image result for one million dollars animated gif$153,498!  

That's only up $1,445 since our last reveiw but it's only been three months and we're up 54% overall – not terrible for our Short-Term Portfolio.  As I said to our Members during our STP review on Thursday, in our Live Member Chat Room, the way we will start our Long-Term Portfolio is to simply add cash to the Short-Term Portfolio and rename it and then put a fresh $100,000 into the NEW Short-Term Portfolio.  After that, it's just a matter of moving the hedges over and we're all set for 2020.

At the moment, the longs in the STP are just smal positions we've been poking around with but there's lots to like for the long-term so they'll make a good base for the eventual $500,000 LTP.  The function of the $100,000 STP is to protect the $500,000 LTP but, at the moment, there is no LTP, so the STP is doing double-duty. 

As we made 52% in the first two months, I was not into taking chances into the holidays.  The indexes have been flying higher but there are still plenty of bargains to be had – our most recent Top Trade Ideas were for TOL (12/16), TD (12/12), M (12/9), CMG (12/6) and VALE (12/2) so we found 4 things we liked and a neutral spread on CMG this month.  In the STP, we added short puts on CSCO, an SQQQ hedge, CMG and VALE – leaving us well-diversified into the two slowest weeks of the year.  

Here's the consolidation of last week's reviews:

Short-Term Portfolio Review (STP):   $153,498 (53.5%) is flat to the last review as our hedges killed us and so did TSLA.  Still, I'd rather lock in a $50,000 gain over 3 months than risk giving it back so we got cautious after making ridiculous 2-month gains.  Next month, we can start an LTP by simply renaming this one and removing the short-term plays and the hedges and putting them in a new STP – see how easy that was – we already started our LTP – and it's our STP!  

  • Short puts – All

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Fa La La Friday – The Weekend Before Christmas

Image result for empty mall'Twas the weekend before Christmas and all through the mall, 

No shoppers were shopping – no shoppers at all!  That's right it's the last shopping weekend of the Retail Apocalypse and there are 9,302 less places to shop than there were last Christmas as that's the amount of store closings this year.  Thousands more store closings could be on the way in the coming years as online shopping continues to replace purchases at physical stores and eat into retailers’ profits. High debt levels and rent have also burdened traditional retailers

PaylessGymboreeCharlotte Russe and Shopko all filed for bankruptcy and closed a combined 3,720 stores, according to Coresight. The majority of those were because of Payless, which filed for its second bankruptcy in February and shuttered 2,100 US stores.  Discount chain Fred’s filed for bankruptcy in September and closed 564 stores. Forever 21 also filed for bankruptcy that month and said it will close up to 178 stores. Forever 21’s closures are not in Coresight’s report since they are not finalized.  Other retailers, such as Ann Taylor parent Ascena Retail, Family Dollar, GNC, Walgreens, Signet Jewelers, Victoria’s Secret and JCPenney, slashed their store footprints to save money and prop up higher-performing stores.  Family Dollar closed 359 this year, while Signet, the parent company of mall stalwarts Kay, Jared and Zales, announced 159 closures.

Image result for mall sales chartAccording to UBS, Online Sales are currently 16% of Retail Sales and will rise to 25% by 2026, which could, in turn, force up to 75,000 additional stores to close, including 20,000 clothing stores and 10,000 consumer electronic stores.  Moody's lowered its outlook on Department Stores heading into the holiday season but it shouldn't affect things much as retailers like Macy's (M), Kohls (KSS), Gap (GPS) and L Brands (LB) are already in the bottom 20 of the S&P 500 in 2019 performance. 

As you can see on the chart – it's not so much that ECommerce has really LOWERED the amount of shopping at malls as it has, very clearly, killed its growth.  Stores are closing, in large part, because the ambitions of the Retailers exceeded the reality of their ability to add sales over time
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Impeachment Thursday – Putin Backs Trump Says He has the Votes in Senate

How crazy is this?

At his annual end-of-year news conference in Moscow on Thursday, Putin denounced the impeachment proceedings as "spurious" and said the US Senate is unlikely to remove Trump. He said Trump's presidency is far from over as Republican lawmakers "are unlikely to want to drive out of power a representative of their own party."

To show off his puppeteering skills, Putin made words come out of Trump's mouth all the way in Michigan while having Trump flash the "White Power" sign to the crowd, who burst into applause.  Now, I don't know when we decided the "OK" sign was now the White Power sign and I'd love to give Trump the benefit of the doubt but it's not like he can't know that the OK sign is not OK – it's been a controversial topic involving his supporters all year long and just this weekend, West Point and  Annapolis launched investigations into students who flashed it during the Army-Navy game.  

This is not the first time Trump has been accused of flashing the White Power symbol during a speech and it's a very interestering time to be stirring it up again, what with him being impeached on the same day and all but Vladimir Putin says Trump should not worry as he can't see his GOP Senators reversing the votes he worked so hard to obtain.  

In the end, no Republican House Members voted to impeach the President and only 2 Democrats voted not to but, on Article 2 of the Impeachment (Obstruction), 35 Republican's did not vote rather than pretend the President did not obstruct Congress any of the 10 times he was cited for doing so in the Mueller Report.   Unfortunately for Trump, the leaves the House Vote 221 to 165 against him and that's 57% – more than enough to convict in the Senate.  

Image result for ok white powerI say we give Trump a pass on using the OK sign because maybe the President is just oblivious to current events or, if not, lacks the self-control to avoid making controversial gestures that are likely to be misinterpreted as support for the worst possible people or, even better
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Wary Wednesday – Boeing Production Halt Spells Big Trouble for Q1 GDP

I don't think people understand math.  

Boeing (BA) Sells $25Bn worth of airplanes per quarter and spends about $20Bn to make them so that's 0.1% off the $4.7Tn quarterly GDP right there but their suppliers also spend money and we're not even considering the impact of the layoffs and the hit we're going to get to inventories – which is also a negative on GDP.  Goldman Sachs (GS) estimates that an $18Bn reduction in inventory (not all BA planes are the Max) alone will knock 0.4% off Q1 GDP PLUS a good 0.1% from BA's lack of revenues (along with the chain of suppliers) so we're talking about a 0.5% reduction to a GDP number that was already projected to be barely above 1%.

Durable Goods and Manufacturing numbers will also take a huge hit so we're looking ahead to a string of bad reports – maybe even a bump in unemployment in the months ahead.  We are constantly amazed by how shocked traders seem to be by news that we could see coming a mile away so I will tell you now – while it is still a mile away – to prepare yourself for the shock of your fellow traders – who are ignoring this coming storm just like they've ignored all other storms to hit the market in the past year. 

Image result for struck by lightning animated gifWill this one matter?  It's hard to say.  There are plenty of people who go outside in lightning storms and very few are actually struck by lightning.  That doesn't mean it's safe to go out in a lightning storm and those who don't go outside are never struck by lightning while those who do are only rarely struck by lightning.  The people who stay inside are not foolish and the people who go outside are not really foolish either – as statistics are very much on their side.

Still, this is math and MATH is telling us that the Q1 GDP will be about 33% lower than the currently projected 1.5%, which means that no one seems to be taking into account the ACTUAL decision by Boeing to halt production through Q1.  Nothing is going to change that – once they shut production,…
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Tuesday’s Top Commodity Trades for 2020

Go KC!  

No, not the Kansas City Chiefs (who are #1 in the West) but /KC Coffee Futures, which are number one for our readers with a big $15,000 per contract gain at $142 - up from our September 25th entry at $100.  The lowest we dipped was $95.80, back in mid-October (/KCH20 is +$3 to the front-month chart) – staying just above our $95 stop line for the whole run and finally blasting off this month, well past our $122 goal.  At the time, I said in the Morning Report:

There's no ETF for Orange Juice but there is for Coffee (/KC) and we always love it below $100 and /KCH20 (March) is down to $102 and that makes for a fun play but you have to be willing to Double Down at $98 to average 2x at $100 with a stop at $95, which would be a loss of $375 per $1 or $1,875 per contract. So the risk is $3,750 but the reward, even at just $122 would be $7,500 on a single contract and /KC has been very good to us for two years now.

So, if the instructions were followed correctly, that's at least 2 contracts that are up $42 each for over $30,000 in gains in 3 months against a $3,750 risk – not bad for a quick commodity trade, right?  For those who are future-challenged, we also had a trade idea for the Coffee ETF (JO) as follows:

Coffee does have an ETF (JO) and, like SOYB above, we can pick up a spread that can give us a nice return. We think $100 (though it can dip below) is a good floor for Coffee as it's a point below which the farmers simply can't make money selling it. For the ETF, which is at $32.50, we can do the following spread:

  • Sell 5 JO March

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