Fabulous Friday – China Deal at Last!

chartDow 30,000 or 10,000? 

30,000 could happen now that we have our trade deal with China though, as you can see from the 1920s wedge (100 years ago next month!), it ain't over until the Great Gatsby sings.  Sure it's a stupid, pointless deal that has no teeth and is no better than what we had two years ago – before all the suffering – but, hey, it's a deal and, as President Trump noted in "The Art of the Deal":

"The final key to the way I promote is bravado. I play to people's fantasies. People may not always think big themselves, but they can still get very excited by those who do. That's why a little hyperbole never hurts. 

So we can expect to hear that this is "The best Trade Deal Ever."  We don't actually know what it is yet and nothing has, so far, been confirmed by China so it's possible the whole thing is nothing more than a way for Trump to distract us from today's Impeachment Vote – which he thought was going to happen late last night but was rolled over to this morning – infuriating the GOP – who worked so hard to drag yesterday's session long past bed time, so most Americans would miss it.

As to the "Trade Deal", although not fully announced, it seems that China is agreeing to purchase $50Bn worth of US Agricultural Products (they used to buy $40Bn anyway) in exchange for $50Bn worth of tariff reductions so, essentially – we are GIVING China $50Bn worth of Agricultural Products and the differenct to the Treasury will, of course, be paid by the American people – as usual.  What a deal!

As you can see from this IMF chart, clearly the damage has already been done and hopefully we're in time to undo it before things get worse – like 2008 worse…

I said a very long time ago the economy was suffering from "Self-Inflicted Wounds" and could easily recover if we simply stop this Trade War nonsense and Brexit nonsense and both look like they might end soon so now we'll
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Future Stock Thursday – Building a Portfolio for the 21st Century

MADUN K The future is now, old man. Face Facial expression Head Forehead Cheek Chin Male ChildThe Future is Now!  

I was posting some news on Tuesday in our Live Member Chat Room and McDonalds (MCD) was selling Artificial Beef (BYND), the Freeport LNG Terminal was coming on-line in Texas to supply Japan with Liquefied Natural Gas, Virgin Galactic (SPCE) got an upgrade based on Hypersonic Travel and Wal-Mart (WMT) is testing Autonomous Grocery Deliveries.  I wasn't looking for them but that was all in one morning's news, which led me to comment to our Members:

I'm thinking we should put together a portfolio of "Future is Now" stocks like SPCE – Something that represents the leader in each Future Field like CRSP, ISRG, etc…

As I noted in yesterday's Live Trading Webinar, it's tough to pick winners this early in the game but we can pick the sectors that are likely to be important in the next 10-20 years and then, within those categories, we can find stocks we currently think are a reasonable value within a growing sector.  In yesterday's Member Chat Room and during the Webinar, we came up with the following ideas:

  • Virgin Galactic (Space Tourism) – SPCE
  • TSLA
  • BYND
  • SPWR 
  • LMT (Fusion) 
  • DIS (entertainment) 
  • XYL (water treatment)
  • WM (more people, more waste)
  • CRSP
  • IBM (AI) 
  • QCOM (5G…) 
  • ISRG 
  • BLDP, PLUG, FCEL (not sure which)

 

IN PROGRESS

 

 

Federally Fueled Wednesday – Low Rates and Tariff Delays – What Can Go Wrong?

The Fed makes their final decision at 2pm.

We'll be doing our Live Trading Webinar at 1pm, EST so we'll be reacting to the FOMC announcement live but, other than yesterday's little dip, we've been chugging along so far this week and I think only bad trade news can derail us now.  

With this President, we won't know for sure until midnight on Sunday whether or not there will be another round of tariffs placed on China.  Yesterday morning there was a rumor the tariffs were delayed but now the signals are back to being mixed and the situation changes by the tweet.  Trump is busy at the moment, lashing out at anyone not helping to get him out of his impeachment mess but it's too late now and this will drag on into next year – but traders don't seem to care.

As it's December 11th, we only have a month to go on our "5 Trade Ideas to Make $25,000 in 5 Months" so we'd better go over them and see if it's worth risking over the volatile holidays.  We hedged our Member Portfolios last week but these were just 5 trade ideas to make money to spend for Christmas – so it really is time to take them off the table:

  • Sell 5 VAC April $85 puts for $5.70 ($2,850) 
  • Buy 7 VAC Jan $80 calls for $20 ($14,000) 
  • Sell 7 VAC Jan $90 calls for $12.80 ($8,960) 

The net cost of the spread is $2,190 and, if successful, it pays $7,000 at $90 or higher


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Tariffic Tuesday – Trump Adds $7.2Bn to his Slush Fund

Image result for trump tariff use of funds"Follow the money!"

That was the advice given to Watergate reporters Woodward and Bernstein by their source "Deep Throat" (don't Google that!) suggesting that political corruption can be brought to light by examining money transfers between parties.  The Trump Administration took in $7.2Bn in tariffs in the form of taxes paid by American Consumers and Companies in October alone.  That number will increase to over $10Bn/month if Trump goes through with his threat to add more Tariffs at the Sunday night deadline.

According to an analysis of data from the President’s own Department of Commerce, American businesses, farmers and consumers – and not China – have paid $42 billion in additional taxes because of these tariffs,” stated Americans for Free Trade spokesperson Jonathan Gold. “Yet even when faced with this staggering number, it’s still unclear whether the president will follow through with his threat to raise taxes yet again on December 15th with another rounds of tariffs, this time on primarily consumer-facing products like toys and consumer electronics.

China’s government and companies in China do not pay tariffs directly. Tariffs are a tax on imports. They are paid by U.S.-registered firms to U.S. customs for the goods they import into the United States.  Importers often pass the costs of tariffs on to customers – manufacturers and consumers in the United States – by raising their prices.

Trump's tariffs are a new tax on Americans, trump tax law tariffs, what tariffs did Trump impose?The trade war has hit swing states particularly hard. In seven of the top swing states (Florida, Iowa, Michigan, Minnesota, Ohio, Pennsylvania and Wisconsin), Americans have paid a combined additional $7.66 billion in taxes because of these tariffs. In Michigan alone, businesses, farmers and consumers have paid an additional $1.8 billion in taxes. For the month of October, people in these seven states have paid an extra $687 million, including almost $138 million in Ohio alone. 

As these states face higher and higher tariffs, their economies begin to suffer. Unemployment is rising in key swing states like Michigan and Wisconsin, with Moody’s Analytics estimating the trade war has reduced U.S. employment by 300,000. Farm bankruptcies have risen 24
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Monday Market Movement – Fed Wednesday, More Tariffs on Sunday

500,000 Jobs!  

That's the NEGATIVE "adjustment" we're going to see in the prior year (March 2018-2019) Non-Farm Payroll report according to the BLS, when they announce their revision in February.  That means that the average job reports have been exaggerated by 40,000 jobs per month.  That's a staggering number – it's a number so large it's never happened before - yet not a peep about it in most of the MSM?  One of the most critical data reports we get in the US is overstated by an average of 20% per month!

None of this, of course, makes any difference to Traders, who are still paying whatever price the market gets marked up to – even while Investors (who are NOT traders) pulled $135.5Bn OUT of the US market so far this year – more than they pulled out in 2001, 2008, 2009 or any other year on record – EVER!

As you can see from the chart, this is no small event and now it's 3 of the last 4 years that money has flowed OUT of the market – even as the market has gotten more and more expensive for those that stayed in it.  We got out in September – cashing in our bloated Member Portfolios and we've only put a small amount of that cash back to work since and perhaps we're being overly cautious but a chart likes this makes me think we're not being cautious enough.

Analysts say the trend highlights investors’ apprehension toward a stock market buffeted by the long-running U.S.-China trade war and lingering worries about a potential recession. Stock funds have bled money over seven consecutive quarters, dating to the second quarter of 2018—when trade tensions between the U.S. and China ratcheted higher.  As much of this money floods into Treasuries, it's also a key factor in keeping rates down (so far, with higher note prices indicating lower rates).  

All this can reverse in a heartbeat and that would be very inflationary, potentially caused by a Trade Deal with China, which could have people running out of bonds and back into the market.  That means we can certainly expect to see some "Secret Santa's Inflation Hedges" for 2020.  We haven't done those since 2017 as…
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450-Point Friday – Dow Erases Half of its Losses – Traders Think that’s Bullish

Isn't that amazing!

What a fantastic market that can drop 900 points in 2 days and then RALLY back 450 points in 3 days.  It's AMAZING!  That's what it seems like if you listen to the Financial Press and I bet that, before I just pointed it out – you were thinking this was a strong weak for the market.  Well, it isn't.  In fact, we're pretty much where we were on November 1st (27,350) so it hasn't been a strong 5 weeks as we close week 1 of December.

We have a strong Non-Farm Payroll Report this morning at 266,000 jobs added and that's giving us a bit more lift at 8:30 and the last two reports have been revised up 42,000 jobs which is a big boost for the Dollar and an initial boost for the indexes until it occurs to someone that job numbers this strong means there's no way in Hell the Fed will lower rates next Wednesday – they should be raising them! 

There's a bit of noise in the report as 50,000 GM workers returned to work and are included in the numbers that bumped up October and November data revisions.  Overall, we're adding about 170,000 jobs a month this year – about the same pace as Obama had over his 8 years – except Obama came in when there were still huge losses but, either way, simply on our normal track with wages rising at an annualized 3.1%.  

There's also a huge bump from Census Workers and, unfortunately for Trump, he won't be able to keep them and that means we're going to see some very harsh unemployment numbers that will be as unfair to look at then as the positive numbers are now – keep that in mind in both directions…

Also note that 3.1% increases in labor costs are ahead of the sub 2% official inflation rate and that puts the squeeze on Corporate Margins and, as labor gets tighter, wages tend to go even higher.  That's why Trump is trying to force 1M people off food stamps and back to work – his Top 1% buddies need to put supply back into
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Philstockworld November Portfolio Review

Image result for one million dollars animated gif$152,053! 

That's right, after closing our our last STP/LTP paired portfolios in September, 2019 with over $2.6M from a $600,000 start in Jan 2018, we decided to put $100,000 back to work in a new Short-Term Portfolio on October 1st.  We haven't started a new Long-Term Portfolio yet, but our STP is already up 52% in just 2 months and, if we average 26% a month for 24 moths – that's $25,638,527 (compounded) so I'm not at all worried that we won't make enough money if we don't deploy our other $500,000 re-starting cash to the LTP right away as 26% a month is not likely to keep going but, if it does – than $100,000 is all we'll need to be very happy!  

52% in two months is a silly amount of money to make and we have to keep that in perspective because we could have just as easily have lost 52% so I'm only comfortable with the relatively small risk in the closely-watched STP – where we can take advantage of long and short positions over varied time-frames.  

We still have our Butterfly Portfolio and our Hemp Boca Portfolio from 2018 and 2019 respectively but Money Talk, Dividends, Earnings are also new portfolios – all started with $100,000 of virtual cash in October and November.  

As it's early in the cycle, I don't have a lot to say so we're just consolidating our first round of Portfolio Reviews here:

Short-Term Portfolio Review (STP):  Doing way better than planned but mostly due to BKNG working out perfectly (even a broken clock….) but also as there is only MJ on the losing side and not too much damage there.  While the Portfolios are small, it's a good time to practice the expectations game.  

Overall, I'm worried we turn down next week on low volume but, then again, they aren't done beating the dead horse of "China Progress" so this drift may go on for another month – into the year's end.  Keep in mind I didn't WANT to have money back in play – it was just so boring to not play….


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Thursday Thrust – Markets Drive Back to the Highs

Correction, what correction?

Monday's drop is now completely erased in the Futures for no particular reason this morning and that's great, I guess.  Traders are back to believing in a China deal because Trump said we're close and, if there's one thing we know for sure, it's that President Trump would never lie to the American people, right?

BUT, just in case he is, maybe we should discuss the idea of having hedges as we now find ourselves with long positions we should probably protect from the next "misunderstanding" we have over trade progress.  We now have a handy "map" that shows us which indexes fell by how much on trade rumors and we know how much that would have paid on the Futures:  The Dow (/YM) fell 450 ponts ($2,250), the S&P (/ES) fell 40 points ($2,000), the Nasdaq (/NQ) fell 125 points ($2,500) and the Russell (/RTY) fell 20 points ($1,000) so the best hedge looks like the Nasdaq.

The Nasdaq is mostly Apple (AAPL) and the IPhone will be banned from Russia as of July for not agreeing to pre-install Russian saftware, which is usually something the President of the US would be outraged over and would step in and stop US Companies from being abused but, you know, Trump…  So Apple faces losing the entire Russian market. 

Apple makes about $3Bn of their Global Profit in Russia so about 5% of their total and AAPL trades at $260 so $13 to $247 wouldn't be tragic but it's a catalyst for another Nasdaq drop at some point so it gives us another reason to use the Nasdaq as a hedge.  Of course, time-frame is also an issue and we'd like to have a trade that lets us take advantage of quick dips and I'd say December 15th is a pretty good deadline for action as it's when the next round of tariffs are supposed to kick in (though they may get delayed).

SQQQ is the Ultra-Short ETF for the Nasdaq and it just bounced off the $25 line back to $27 on the recent dip and the Dec (20th) $24 ($2)/26 ($1) bull call spread is net $1 on the $2 spread so it pays 100% if
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What Now Wednesday – Trade On? Again?

Wow, it's like a soap opera!  

Bloomberg now has a newsletter called "Terms of Trade" that tries to keep up with the ever-changing nonsense each morning.  I read it so you don't have to but, if you ever want way too many details – have at it.  I mostly ignore the noise and chime in when it seems significant but this week it seems constantly significant, unfortunately.  

In yesterday morning's PSW Report, I said the S&P 500 (/ES) Futures would fall to 3,075 and they hit that pretty much on the button around 10:30.  Though we illustrate the point using charts, PSW does not use or believe in TA at all – we just use our handy, dandy 5% Rule™ and the rest is just math.  That math is more accurate than 100 TA guys and it only takes us a few seconds to tell you what's likely to happen (and how to make money playing it).  

In fact, in yesterday's Live Member Chat Room, at 11:37, I said: "We can play /RB (Gasoline Futures) bullish again over $1.585 with very tight stops below" and, in the Morning Report, I had already predicted: "I have a feeling the White House will at least try to walk back Trump's comments before the S&P (/ES) fails that 3,000 line and 1,585 has been very bounce for the Russell (/RTY) – so it's a great place for a bullish bet with tight stops below."

As you can see from the Gasoline Chart above, we just crossed back over $1.585 early this morning and, so far, it is holding up against a weakening Dollar while the Russell (/RTY) is already back at 1,611 – up 26 points which is good for gains of $1,300 per contract already and I'd put a stop at $1,100 and be very happy with those gains (and a stop on /RB at $1.59 now, to lock in $220 per contract gains with a trailing 0.005 stop).  

See – not so hard to make money in the Futures and you can join us this afternoon


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Tumblin’ Tuesday – Trade Off (Again)

Image result for wayne's world game off"Game off!

That's all it takes to erase half of November's gains in 24 hours (the Dow Futures are off another 200 points this morning).  Volume in yesterday's down day was double the average day in November and, other than November 20th, when the Dow dropped 50 points – it was more volume than any day in November as well.  

This is not a good way to start the month – especially when loast December, the Dow dropped 4,500 points into Christmas.  So far, this is only 400 points yet most traders have already forgotten what happened last Christmas and are trading like the markets only go up and up and up – buying stocks at ridiculous multiples in hopes that someone even stupider will come along and buy it from you at a later time – but what if that time never comes?  Then you are the greater fool!  

We were bored waiting for the sell-off so we initiated some small portfolios, using just a small percentage of what we cashed out with in September but, if we drop another 500 points on the Dow and fail to hold 27,000 and fail to hold 3,000 on the S&P – I think we may have to close those down already and wait until we find a proper bottom to get back in.  

Trump is at the NATO meeting – which means he's not meeting with China or his handlers in Russia – so a mixed blessing there but there's a looming Dec 15th deadline on trade and no progress is being made and that is spooking investors.  Trump also has no friends at the NATO meeting – even Boris Johnson won't talk to him as he's facing an election and people already think he's "too Trumpy."

 

 

IN PROGRESS