Just Another Manic Monday

OVER 1/2 of US housholds have lost some income since March.  

OVER 1/3 expect to lose more in the next 30 days.  

Jobs have been furloughed, businesses closed, hours reduced and salaries cut.  While the health emergency and lockdown were the biggest direct cause of unemployment, there were secondary effects, too. Pandemic-induced layoffs were responsible for 11.6 million job losses. A further 6.9 million are due to the unavailability of child care, which is why Trump wants to force children back to school and risk their lives and the lives of their families – it's making him look bad when they stay safe at home.  

The survey recorded how a public health crisis turned into a food crisis, as the responses showed that millions sometimes or often didn’t have enough to eat. That number rose to 23.8M for the week ending July 24, an increase of almost six million since the first week of May.  At the same time, after a near-total shutdown of restaurants early in the crisis, Americans – especially those with higher incomes – have gradually been getting back into the habit of dining out. Still, spending remains far below pre-pandemic levels.

The Centers for Disease Control and Prevention, in a study conducted in May and June, found that more than 10% of adults seriously considered suicide — a figure that rose to more than one-quarter among 18-24 year-olds. It also found a jump in substance abuse, and said mental health outcomes were worse among racial minorities, essential workers, and unpaid caregivers.

The Census Bureau’s survey, in addition to high levels of anxiety and depression, reported on problems with physical health, as well. It found that more than 70.9M adults did not get medical care that they needed, for a condition unrelated to Covid-19, between mid-June and mid-July.

While none of this seems to affect the stock market, you KNOW the market is wrong.  Just walking down the street tells you the economy is in trouble as so many stores and restaurants you walk past are temporarily or permanently closed.  And this is WITH the economy running on MASSIVE stimulus – MASSIVE is nowhere near a big enough word to describe the stimulus, actually, as it's been about one third of our GDP already in the first 8 months of this year with more on the way.  Even so, market returns have been mixed.  

 

 

IN PROGRESS

 

 

1933 Friday – Best 100 Days Since the Great Depression – Markets Love Mayhem!

The Stock Market Crash of 1929Here we go again?

The last time the S&P gained 50% in 100 days was on the bounce off the first leg of the great Depression.  In the 90 years since, we've never repeated that trick – until now, when the S&P has popped 50% in 100 days.  You'll notice we flattened out after that in 1933 and that is despite MASSIVE STIMULUS at the time.  In fact, we didn't really get the economy going again until World War II broke out and, between the military service and the war manufacturing, the US went to full employment – so much so that they even let the women work!

The Depression was persistent because it's all about jobs and jobs are all about Consumer Spending and we'll be getting our Retail Sales Report at 8:30 this morning, followed by Consumer Sentiment at 10 am.  Just like the Trump Depression, the Great Depression began when there was very low unemployment – just 2.2% in 1929.  Then the market crashed, like it did in March, and then we had a bit of a recovery but then we completely collapsed as job losses mounted and businesses could not get back on track.  

U.S. Unemployment Reaches 14.7 Percent – Chart from Great ...

I know it's hip to be complacent and pretend everything is awesome, etc. because who wants to face the reality of our situation and, believe me, I take no pleasure in being Cassandra for the group but the sky IS falling and ignoring it won't make it go away.  These are not abstract things, this is stuff that's right in front of our faces that people are simply brushing off – mostly because we have a Government that encourages you to brush it off.

While we are off our (mostly) April highs, we still have MASSIVE unemployment and we don't know what the effect of Lockdown II is going to be but, since this report was filed, there have been 11 major Retail Bankruptcies in two months, after 12 in March, April and May: 


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3,350 Thursday

The S&P 500 topped out yesterday at 3,387.

That was just shy of the 3,393 high we hit in February, the day before we plunged 1,200 points (35%) over the next four weeks.  HOPEFULLY we won't repeat that disaster but, just in case we do, we're beginning to cash in our positions and, today, we're going to once again roll up our hedges to help lock in our gains.

The market is up not 35% (that's what we dropped from) but 50% abover 2,200 and that's a pretty good run.  According to our 5% Rule™, we should be expecting a 20% pullback (of the 1,100 gain) from 3,300 back to 3,080 as a weak retracement and a stronger pullback would give back 40% of the gains, to our Must Hold Line at 2,860.  That would NOT be bearish if the Must Hold line does, in fact, hold – it will just feel that way.

Still, no point in riding out the dip if we don't have to so we're going to raise more CASH!!! and there are plenty of great stocks to buy, like WBA, INTC, BA and VIAC (see Tuesday's Report and yesterday's Live Trading Webinar) so we'll have somewhere to put that cash if the market doesn't crash but I'll feel a lot better heading into the Back to School Disaster with more CASH!!! in our portfolios.

Our Long-Term Portfolio Positions are up over 100% for the year and they are protected by our Short-Term Portfolio, which is up 315% for the year at $415,152.  That's actually down about 100% as TSLA has once again spiked up on us but we think we can outlast the Tesla bulls – even as the stock hits $1,600 again today.  It's time, once again, to make some adjustments as the Nasdaq tests 11,150 as well this morning:

  • CANE – Just a simple bet on Sugar.  I don't see any reason not to ride it out as it's breaking up nicely.

  • AAPL – On track and we don't need the margin but we may as well buy it back and clear the slot.  


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Which Way Wednesday – Market Swings Getting Wilder

Wheeee, this is fun!  

On the whole, the Nasdaq has only fallen 150 points since Monday's open but it's had drops of 50 points, 200 points and 300 points in 3 days so I guess we're working up to the 600-point (5%) one-day drop ahead of us.  Meanwhile, rumors of stimulus is still keeping us afloat.  Yesterday, according to Treasury Secretary Mnuchin (why is it always a Goldman Sachs guy?), the Trump administration is open to resuming coronavirus aid talks with Democratic leaders and would offer more aid money to try to reach a compromise.

“The president is determined to spend what we need to spend. … We’re prepared to put more money on the table,” he told CNBC’s “Squawk on the Street.” 

Well, that's what he said after the markets plunged into the close.  Mnuchin promised they could get a deal done by the end of the week but they haven't actually re-started talks yet so that's a little hard to believe.  Remember how many times we had a trade deal with China "any minute"?  Meanwhile, Trump did not continue the moratorium on evictions because it's hard for homeless people to vote against him and so many of his friends are landlords.  

Schumer and Pelosi also criticized the measures in a joint statement Saturday. They said the policies would provide “little real help to families” and would not address Covid-19 testing, efforts to reopen schools and food assistance.  Dems call for $3Tn, the GOP wants to spend $1Tn.  The White House has already rejected an offer by the Democrats to meet in the middle with roughly $2 trillion legislation.

On Monday, New York’s Democratic Gov. Andrew Cuomo said the unemployment benefits spelled out in Trump’s executive order would cost his state an estimated $4 billion by December. It would add to a budget shortfall that Cuomo said was already $30 billion. “That’s handing a drowning man an anchor,” the Governor said.

Overall state budgets were almost $200Bn in debt in the first half of this year and no better so far in the second half of the year and they simply can't afford to prepare the schools
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20 Million Tuesday, 28,000 Tuesday – Record Infections, Record Highs

Why didn't we think of this before?  

A deadly virus sweeping the planet is GREAT for the stock market!  There we were trying to keep stores open and going to work and making things – what a waste of time that all was, right?  All we had to do was stay home and have the Government print money – we are all "welfare queens" now, aren't we?  That's especially true of our Corporate Citizens, who are getting hit after hit of Government cash and paying record-low rates for record-high debt – what could possibly go wrong?

The stock market is up 5% in the past week and 15% since July 1st and 54% since March 23rd's 2,200 low – that's a pretty good rally.  We caught that rally and now I think it's time to CASH OUT of our crisis trades so let's do a quick review of the trades we made while the rest of the World was panicking and yes, I'm now telling you to GET OUT!!! while the rest of the World is buying – imagine that….

That's right, it was now 5 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 original trade ideas followed by the current price and profit in caps.  If I don't mind holding the position – we'll call it a KEEPER:

  • Boeing (


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Monday Morning Markets – Moving Past 5 Million Virus Cases

5,045,564.

That's how many cases the US officially has (not that we are counting).  162,938 Americans are dead, that's much harder to cover up.  Globally we are about to cross 20M cases at 19,877,261 with 731,570 deaths so the US has more than 25% of the global cases and 22% of the deaths – despite having just 3.7% of the population so Trump is right – America is leading the world by a factor of 6 – no one transmits the virus or dies from the virus like we do!  MAGA!!!

The markets don't seem to mind and we're still up around record highs as the worst things are for the American people, the better things are for American Corporations, apparently, as the stimulus fairy comes and pays them visit after visit.  President Trump played the fairy this weekend, waving his executive action wand and unconstitutionally wishing for various bribes to the voters:

  • $400/week supplement to unemployment checks (states need to pay for it and Federal supplement comes from Disaster Fund that's meant for hurricanes, etc).
  • Suspend payments on Student Loans through 12/31 (but not the interest).
  • Extend eviction protection through 12/31 (the courts can't handle the backlog anyway)
  • Defer Payroll Taxes through 12/31 (a disaster for the Social Security and Medicare System and also puts a huge tax burden on the employees at the end of the year they are unlikely to manage for, which will be blamed on Biden as a tax increase, of course) 

In other words, Trump's Executive Orders are a whole lot of nothing but Congress and the White House have still failed to reconcile Democrats' $3.4Tn coronavirus-relief plan and Senate Republicans' far smaller $1.1Tn proposal.  The Paycheck Protection Program expired Saturday. The future of the small business rescue plan is in limbo.  “Meet us halfway and work together to deliver immediate relief to the American people,” Pelosi and Schumer said in a joint statement. “Lives are being lost, and time is of the essence.”      

Joe Biden, noting that Trump signed the “half-baked” orders at his golf club in New Jersey, said they short-change the unemployed and trigger a “new, reckless war on Social Security."  “These orders are not real solutions,” soon to be President Biden said. “They


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Friday Federal Failure – Congress Takes a 3-Day Weekend Without Fixing Anything!

Political Cartoons - October 29,1929: The Great DepressionWTF?

The unemployment benefit boost ran out last Friday and, all week, we were told Congress was making progress towards a new stimulus bill and President Trump, who has never steered us wrong, said that if Congress couldn't agree to extend benefits he would sign and executive order but, last night, the whole thing blew up and we got – NOTHING!!! 

Democrats have introduced the HEROES Act which would provide $3 trillion of economic relief. The Republican plan, the HEALS Act, would only allocate $1 trillion dollars. Both sides have attempted to reach compromises in order to pass a cohesive bill, but that has yet to occur.

After a meeting between Democratic House Speaker Nancy Pelosi, House Minority Leader Chuck Schumer, White House Chief of Staff Mark Meadows and Treasury Secretary Steven Mnuchin, Pelosi said no progress had been made. "We're very far apart," Pelosi said. "It's very unfortunate."  Pelosi said Republicans "didn't take the virus seriously in the beginning, they're not taking the consequences of the virus seriously at this time. And that's why it's hard to come to terms."

As noted by Paul Krugman, employment has plunged, and real G.D.P. fell by around 10 percent. Almost all of that, however, reflected the direct effects of the pandemic, which forced much of the economy into lockdown.  What didn’t happen was a major second round of job losses driven by plunging consumer demand. Millions of workers lost their regular incomes; without federal aid, they would have been forced to slash spending, causing millions more to lose their jobs. Luckily Congress stepped up to the plate with special aid to the unemployed, which sustained consumer spending and kept the nonquarantined parts of the economy afloat.

The Democrats put up the HEROES act in JUNE and now it's AUGUST and we're still waiting on the Republican plan – even though they are well aware of the consequences of not moving forward.  Unlike affluent Americans, the mostly low-wage workers whose benefits have just been terminated can’t blunt the impact by drawing on savings or borrowing against assets. So their spending will fall by a lot – pretty much immediately.  

8:30 Update1.8M jobs were added in July,
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Faltering Thursday – Jobs Disappear and Take Market Highs With Them

695,000.

That was the most people ever laid off in a single week in the US, way back in 1982.  In March, layoffs peaked out at 6.9M in a single week and, for the month of July, they've been around 1.3M – each week – double our worst week in history 4 weeks in a row.  And this is what President Trump calls a recovery?

As you can see from the Unemployment Chart, we still have about 17M jobless Americans (officially) and it's getting worse again.  Temporarilly laid off workers went back to work but the jobs thate are being lost now are the permanent kind, due to store closing, restaurant closings, etc. – jobs that aren't going to bounce back quickly and can't be "fixed" with a small stimulus loan.  

And, don't forget, the Government supplemented businesses NOT to lay off workers through July but now that those supplements have run out, a lot of companies have to make hard choices to either pay the rent or pay the workers and many are just giving up and doing neither and, when the landlords can't pay the bank – that's when the Fed leaps into action!  A good example of reality from the Wall Street Journal this morning:

Shana O’Mara has been receiving unemployment benefits since early July, after the expiration of a government loan that was sustaining her Tempe, Ariz., travel agency. She stopped drawing a salary from her business to keep it alive, but has continued to work without pay helping customers rebook and cancel trips.

She said her most recent weekly unemployment benefit payment fell to $214 after taxes, from $748 the preceding week, reflecting the July 31 expiration of an additional $600 in pretax federal benefits.  “I don’t think anyone can live on $800 a month,” she said. Her family has stopped ordering takeout, and she called her auto lender and


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Will We Hold It Wednesday – Dow 27,000 Again?

MORE FREE MONEY!!!

We'd better give some to Disney (DIS), who lost $5Bn in Q2 and has given up on releasing Mulan (live version) in theaters and will go straight to video in September.  The Covid-19 pandemic has closed Disney’s theme parks, virtually eliminated movie distribution and curtailed live sports, a key programming source for Disney TV networks. However, the world’s shut-in nature has helped the  company’s Disney DIS 0.81% + streaming service secure more than 60 million users in nearly nine months, a mark that Netflix took about eight years to achieve.  

In other playground stocks, WYNN also lost $5Bn this morning in their Q2 report and the company has $3.8Bn in cash left and already has $12.8Bn in debt.  The company is trading at about 50% of it's all-time high despite revenues being off 94.8% for the quarter and despite the fact that WYNN has only made about $2Bn in the past 5 years so a $5Bn loss is wiping out 10 years+ of profits.   

Of course the nice thing about WYNN going forward is it will be 10 years until they have to pay taxes again but it could be 100 years if they lose another 5Bn in Q3 and go bust – all this optimism assumes things will be back to normal next year but, between now and then, how much debt damage will be done.

Unfortunately, we simply don't have enough information to take a stab at WYNN for $8Bn when they are losing $5Bn a quarter.  What rational investor would pay $8 to lose $5 per quarter?  These losses are real, they have to either borrow more money next Q (you already owe $13 as a proud shareholder) or find more investors, which will dilute your position.  As fun as it would be to own the stock going forward, even if they make $500M/year, there's this debt to pay and $8Bn is still 16x FUTURE earnings – that's not a good deal by any stretch.  

Most stocks are like that at the moment and so is the entire market.  We're irrationally ignoring the the potential downside to a second wave of viral infections and we're still in the middle…
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Toppy Tuesday – Waiting for the Shoes to Drop

We're still at 11,000 on the Nasdaq.

We punched over it a bit yesterday and we're into our second round of shorts on the Nasdaq (/NQ) Futures now and you can still catch them crossing the 11,000 line with tight stops above, which is a more conservative way to play.  We scaled back in overnight, taking advantage of the spike up to end up with 3 short at 11,048 average so 11,000 is now our stop line to lock in the net $1,000 per contract gains (there were some losses that are offset).  

The Russell (/RTY) is below 1,500 so, as long as that stays below, it's still good to short /NQ and the Dow (/YM) failed 26,600 and the S&P (/ES) failed 3,300 again and we're probably on the way back to 3,150, which is the Must Hold Line on our Big Chart and also now the 50 dma(ish).  Our tracking chart for the S&P is more conservative as we don't think this bull run will last so the Must Hold line on the SPX is still 2,850 and thats' a solid 15% drop from where we are now:

Our hedges in the Short-Term Portfolio are holding up well and the portfolio itself is up 373% for the year as the STP loves volatility – and we've had plenty of that.  Although it's early in the month, not much is happening today so it's a good time to go over our hedges and see if there's anything we should adjust (there wasn't last time).  We haven't touched the positions since July 14th (3 weeks) other than adding the short INTC puts but, since then, the Long-Term Portfolio (LTP) has gained $75,000 AND the Short-Term Portfolio (STP) is up $70,000 too – not bad for leaving things alone!

  • CANE – I thought sugar consumption may go up during a pandemic and so far, so good and we're well over our very conservative target.  Keep in mind that we sold the Oct $5 puts for 0.75 so our net entry is $4.25 and we make 0.75 (17.6% against risk) if CANE is


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