Fickle Friday – Market on the Road to Nowhere in the Month of May

S&P 2,850.

That line is like a magnet and, halfway through the month of May, right where I predicted we'd be when I was on Bloomberg on March 11th (see: "Thursday Failure – Trump Shuts Travel, Provides No Solutions, No Stimulus – Market Tanks (again)" for the recap).  That prediction was not for political reasons – it was based on our assessment of the VALUE of the S&P 500 based on what we knew regarding the virus, the stimulus, the political and social environment.   You know – Macro Analysis.

There's been a ton of BS thrown around as the virus and our Government's response to the virus, has become such a political issue that I can't even say the President is doing a bad job without getting death threats.  My job as an analyst is to tell you what's really going on – whether you want to hear it or not – anything less than that wouldn't just make me bad at my job, it would make me dishonest.  

If you want an honest, balanced assessment of where we are now – here's the Mayor of Los Angeles – one of the smartest guys I ever met – giving his assessment of how we stand as cities struggle to re-open:

Also on Wednesday, Garcetti said on ABC: "I think we have to all recognize that we’re not moving beyond COVID-19.  We’re learning to live with it."  “We’ve never been fully closed, we’ll never be completely open until we have cure,” he added.  That's why we got more aggressive with our hedges on Tuesday (ahead of Garcetti) as the S&P approached 3,000 and we did the math and decided that would be a p/e of over 35 on the S&P – a bridge I did not feel even irrational investors and trade bots were willing to cross.

That post became part 7 of our Portfolio Protection Workshop and I strongly urge you to re-read that series over the weekend as we may be approaching another major down leg as the World will hit 5M infections next week and the US alone will pass 1.5M infected as we are still getting 25,000 new cases each day
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Thirty Five Million Thursday – 2 Months of Rising Unemployment

Unemployed New Yorkers Demonstrate Photograph by Everett35M people have lost their jobs in 60 days.

The way stores and restaurants are opening, with limited customers allowed in and limited seating – getting back to normal isn't normal at all. “We have a situation where people and families in every part of the country are facing this unprecedented crisis, and they are looking for relief,” said Congresswoman Pramila Jayapal yesterday, where she co-sponsored a bill with Josh Hawley (R-MO) to guarantee incomes during this pandemic.  “This is a proposal with broad support that should be taken seriously,” she added. “What are we waiting for? Are we waiting for unemployment to reach 50 percent?

The only reason we're not seeing people marching and protesting like they did in the Great Depression demainding Government Support is because they can't leave their homes.  35M people is 10% of our country but it's 20% of our work-force and we didn't start from zero unemployment – this is a dire situation and things are starting to unravel and, once again, we are being met with a big ball of dysfunctional incompetence from the Administration. 

See, I didn't say TRUMP Administration so you can pretend any Administration could have F'd America over this badly.  The Hoover Administration was about as incompetent as the Trump Administration.  In fact, with promises of high tariffs and low taxes – you can see that Trump pretty much just copied Hoover's playbook – including kicking off the country's second Great Depression:

Political Ad for Herbert Hoover called "A Chicken for Every Pot"

Losing the jobs couldn't be helped, they are a  result of the Lockdown Policy which was a rational response to the virus but the WAY we are losing the jobs should have been helped.  Wages in the US are $6Tn per year or $500Bn per month and you can see what kind of money the Government is throwing around so the question is – why couldn't they simply throw some at the workers?  Just give the workers $1Tn while they take two months off and there is ZERO damage to Consumer Spending Power which, in turn, drives the economy.  

Of course there would be some things consumers wouldn't spend on, like Retail, Restaurants, Travel and Live Entertainment but then we could have compensated JUST those industries and it would have cost half as much as we have spent on this ineffective mess of a bailaout already.  

 

IN PROGRESS

 

 

Which Way Wednesday – Powell and PPI and $3Tn More Stimulus

Marius Bitcoin ???????'s tweet - "A $3 trillion relive bill. What ...$3,000,000,000,000!

Will it be enough to buy a rally this morning?  If not, we have Jerome Powell speaking at 9am and you know Powell doesn't speak before the open unless he's going to boost the market, lest he face the wrath of the President.  We also get the Atlanta Fed Report at 10am and there's a 30-year bond auction at 1pm that should go well becuase, despite the low rates – people are still terrified.  

The US is already running a $3Tn deficit in Q2 and no country in history has ever had to borrow so much money in such a short period of time so jacking that number up to $6Tn is concerning – especially as it would put Trump's accumulated deficit up over $13Tn – addding 66.6% (of course) to the National Debt in just 3.5 years since he took office.

Of course we have to spend money in a crisis – that's not Trump's fault (though the extent of the crisis is) but it's not like we were starting with a budget that was under control.  Spending $6Tn would be fine if we knew FOR A FACT that this would be the end of it but we haven't cured anything, we haven't prevented anything, we haven't even got a plan for riding this thing out.  The Administration, at the moment, is pushing for "Get back out there and try not to die."

Fearless Dr. Fauci is more loyal to truth than to Trump - al.comWhile the Trump Administration is rushing to get the economy opened back up, Dr Fauci was testifying to Congress yesterday that this is a terrible idea:

“There is a real risk that you will trigger an outbreak that you may not be able to control,” Dr. Fauci warned.  That could result not only in “some suffering and death that could be avoided,” he said, “but could even set you back on the road to trying to get economic recovery.”

We have met the moment and we have prevailed,” President Trump declared on Monday.  Now, I know everyone is now an Epidemiologist but the guys who actually went to…
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Toppy Tuesday – Pressing our Hedges (Just in Case)

S&P 3,000 – woo hoo! 

That's right, we're almost back to where we were last Summer, 50% higher than we were 4 years ago (that was 2,000 Foxies!) and 100% higher than we were 7 years ago (1,500).  In 2013, the earnings per share for the combined S&P 500 were $110.98 so we divide 1,500 by $110.98 and we get a price to earnings ratio of 13.51.

Then we take 2016, when the S&P earnings had bounced back to $101.08 and the S&P was at 2,000 and…. Ha, ha – I fooled you Foxies! – $101.08 is LESS than $110.98… just seeing if you could do the math there.  Anyway, we divided 2,000 by $101.08 and we see the P/E shot up to 19.78 – those are nose-bleed levels of valuation – even in a strong growth environment.

Still, the growth expectations were justified as Corporations no longer have to pay taxes or worry about destroying the environment and, in the golden age of Trump, earnings shot up to $140 per share last year and the S&P hit 3,400 – still with a p/e of 24.28 - as if this growth will go on forever.  Why, to keep that kind of growth up you'd have to PAY corporations tax money on top of the profits they make.

Guess what?  That's what we're doing!  The Goverment just borrowed $6Tn, mainly to give to large Corporations while gutting what few remaining regulations we had left AND they let 30M jobs be destroyed, loweing the cost of labor for the rest of this decade AND they lowered Corporate Taxes even further.  Mission accomplished indeed! 

With the S&P 500 back near 3,000, we can now divide 3,000 by 24 to see if we think we're at a realistic level of optimism.  3,000/24 for the Foxies is $125 and $125 is $15 less than $140 and $15/140 is 10.7%.  So, in order to be paying 3,000 for the S&P 500 companies as a group, we have to believe that this Global Pandemic did not disrupt corporate earnings by more than 10%.  How stupid is that?

 

IN PROGRESS

 

 

Monday Market Momentum Fading Fast

And down we go again!

That's OK because last Monday we gapped down 200 points and spent the rest of the week gaining almost 1,000 points and April 27th opened down from the Futures but then we recovered and gained 1,000 points.

With all these 1,000-point gains you would think we'd have made huge progress but not really – we're still hanging around the same 2,850 line on the S&P 500 that we were at last April and the April before that.  There was no virus in April of 2018 or April of 2019 but there also wasn't $6.7Tn in stimulus floating around so, if we are to consider 2,850 the fair value for the S&P 500 – the question is will the stimulus be more or less or exactly enough to counter-act the economic damage of the virus?

Of course, it's not just the United State's $6,700,000,000,000 contribution that matters as the S&P 500 derives more than half its revenues from the rest of the World so their pain is our pain in these circumstances.  Europe has pledged to do whatever it takes and China will be having their delayed, annual People's Congress next week and the PBOC has already promised to provide more economic support (China at about $1Tn so far). 

https://www.zerohedge.com/s3/files/inline-images/TSY%20net%20issuance.jpg?itok=WFW02LosOf course, if we are going to be counting on a long-range recovery to justify paying pre-virus prices for stocks that will clearly NOT be making pre-virus money this year – then we should also be taking into account the damage that is being done by the US (and other nations) racking up a $4Tn Deficit in 2020 – and that's ignoring $4Tn added to the Fed's balance sheet and a very likely additional round of stimulus that's coming.

Does it matter that our Deficit has increased by $7Tn in 4 years (now over $25Tn!) and is projected to run another $3Tn in each 2021 and 2022, or does it really no longer matter how much money we print?  If it doesn't matter, then why aren't we fixing Social Security and Medicare, among others?  The CBO projects the Highway, Pension Benefit Guaranty Corporation Multi-Employer, Medicare Hospital Insurance, Social Security Disability Insurance, and Social Security…
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Portfolio Protection Workshop Part 6 – 20 Crisis Trades and Adjustments

Two Months In: Our 2nd monthly agency update – My Real Kid: life ...Has it been two months?

That's right, it was two months ago when we first plunged below our 2,850 "Must Hold" line on the S&P 500 and, as I said back on March 12th, "When the going gets tough, the tough go shopping" and it's not just the lower stock prices we take advantage of when our fellow investors are panicking out of positions but the higher levels of volatility raise the Volatility Index (VIX) and allow us to "Be the House" and sell options for fantastic premiums.  

Initially, we sell puts to establish good entries in positions when we think there may be more downside.  We'll see how those are doing and decide whether we want to expand on our plays.  The first round was taken on March 12th, and these were the trade ideas followed by the current price and profit in caps:

  • Boeing (BA) – It's hard to call a bottom on BA but they will be close to $160 this morning and that means we can sell 5 of the 2022 $110 puts for $27.50 ($13,750) in the LTP for just $3,707 in margin. This one could be a rough ride.  NOW $32.50 ($16,250) DOWN $2,500 (18.2%)


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Non-Farm Friday – Is America Working?

Fact Check: The Best & Worst Presidents for Job Growth Since World ...Up and up the Futures go.

Pretty much every day the Futures climb higher and higher yet, 3 weeks after we took back the 2,850 line on the S&P – we're only at 2,909 this morning but don't get too attached to that as the Non-Farm Payroll Report comes out at 8:30 and it's possible we'll show a loss over 20M jobs in the month of April, wiping out ALL of Trump's gains (4.7M), ALL of Obama's gains (8.9M) and, even if we ignore Bush Jr's losses, we've still lost so many jobs under Trump that it even eats into Clinton's (Bill, not Hillary – thank goodness she's not President, right?) 18.9M jobs gained.  

So, effectively, in year 4 of the Trump Administration, America has lost so many jobs (perhaps 30M total) that he has wiped out all of the US job gains since 1993.  Are you tired of winning yet?  

 

IN PROGRESS

 

 

Thrilling Thursday – Futures are Up because… Who the F**k Knows?

Leonard Nimoy Spock GIF - LeonardNimoy Spock Shit GIFsDon't ask me to explain this BS.

Yes, I know it's my job to explain this BS but sometimes I'm like Leornard Nimoy at the end of "In Search Of" when he would say "That is some strange sh*t" – or at least that's how I remember it ending… 

Speaking of ending, Trump is sending everyone back to work and wanted to disband the Coronavirus Task Force (people freaked out, so that's off for now) and, as usual, it takes less than 24 hours for his BS to be exposed as YESTERDAY the US once again led the World with 24,245 new infections, bringing our total to 1,228,457 so that's a 2% increase for the day which (doing the math for our Fox viewers) is a rate of 60% more per month, which would bring us to just under 2M infections in the next 30 days WITH THE LOCKDOWNS. 

But nooooooooooooooooooooo!, we're not going to continue the lockdowns are we?  Lockdowns are for pussies and we're Americans and Donald Trump says (literally, he actually said this) that we should be good soldiers and march back to work and many of us will be injured and some of us will die (more than Vietnam already) but the virus is our enemy and the way Trump wants to defeat it is by throwing American lives at it until it gives up!  

Trump didn't fight in Vietnam (bone spurs) but perhapse one of our Republican readers can explain to the President that, when a soldier is injured or killed in a war, he doesn't come home and infect his family and friends as well.  If that were the case – I think we would have less wars.  Telling a father of 2 young children to leave his home and commute back to New York City to shuffle papers "for the good of the economy" doesn't just put his life in danger but the life of his wife, his children and their entire community.  That's not just irresponsible of the President – it's reprehensible! 


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Wrong Way Wednesday – Re-Opening Opens the Door to Potential Disaster

Steven Spielberg Film GIF - Find & Share on GIPHYI don't want to be that guy.  

I don't want to be the guy who yells at the cheering crowds who swarm back onto the beach and into the water that the shark is still out there but, the shark is still out there!  WTF is wrong with you people?  There are now 1.2 MILLION infections in the US as of May 4th and on April 4th it was 308,000 so that's 892,000 new cases in the last 30 days – an increase of 290% in 30 days.  Even the Mayor of Amity Island would have kept the beaches closed if 3 deaths had turned into 9 deaths during the month.  There were no more deaths – so he thought it would be safe but why were there no more shark attacks?  BECAUSE PEOPLE DIDN'T GO IN THE WATER!!!

What happened when they re-opened the beaches?  Chaos!  Some states do have strict lock-downs in place and have stopped the increase in the rate of the growth of the virus and some have even decreased rate of the spread of the virus BUT IT'S STILL SPREADING IN EVERY SINGLE STATE.  Re-opening the states now when we haven't contained it in ANY state is MADNESS!!!

Only 180,000 people out of 1.2M infected have recovered from the coronavirus so far in the US.  70,500 Americans are dead – more than we lost in the 20-year Vietnam War but Donald Trump is drafting all of you into the war against Corporate Losses.  The entire planet has 257,906 deaths and 27% of those are US deaths – despite the US being only 3% of the World's population and again, that's SO FAR, as IM infected people are still waiting for their outcome from the disease and who knows how many millions will be infected if we re-open too soon.

WHY TAKE CHANCES?  Why gamble with American lives.  

 

 

IN PROGRESS

 

 

Testy Tuesday – Back to 2,850 on the S&P 500 – Again

Well, you can see why we call it our "Must Hold Line."

2,850 on the S&P 500 has been the center of all the action for the past month and that GOOD since, 1/3 into earnings season, it indicates we made the right call with our predicted ranges for the year.  Of course it's also BAD – because those ranges are now a far cry from the market highs we had before…  They are not coming back in the near future, so stop wishing for them (see "Portfolio Repair Workshop Part 4 – Adjusting Our Goals to Reflect Reality").  

This is a huge advantage options traders have over stock traders:  If you own stock in IBM, for example, at $140 and now it's at $120 - you can cross your fingers and pray it gets back to $140 (it will) or you can double down at $120 and lower your basis to $130 and hope it gets back to that and that's about all your options (other than taking the loss).  

With stock options, however, I can cash out my 100 shares of IBM at $120 and IMMEDIATELY get my $20 loss back by selling the 2022 $115 put for $20.  The put contract obligates me to buy IBM for $115 between now and Jan 2022 and the buyer of that contract is willing to pay me $20 to cap loss on IBM at $95 – maybe he bought it for less, maybe he also sold calls – don't know, don't care because I got my $20!

With $20 back in our pocket and $120 from the sale of the stock, we are now even (not that we would have been so foolish as to buy stock in the first place!) and our worst-case scenario is owning IBM again at $115.  Still with $140 back in our pockets we can even get a bit more bullish and we can buy the IBM 2022 $110 calls for $21 and sell the 2022 $130 calls for $12 and that's net $9 on the $20 spread.  

So the upside potential is $11 which is 122% on my $9 and I can
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