Flip Floppin’ Friday – Closing out a Wild Week

What a ride.  

GameStop (GME) went from $75 to $483 to $112 and now $335 pre-market and it's like watching a ball bounce around a roulette wheel at the moment except, at least on a roulette wheel – the numbers fall within a particular range.  This, on the other hand, IS CRAZY!

But it's also a great lesson in valuation as, clearly, the business of GameStop hasn't changed this week and even the perception of the value of GME hasn't changed this week ($100 is a stretch) but the SENTIMENT has been all over the place, hasn't it?  

The GME debacle is nothing more than what goes on every day in the markets but this is a close-up look at what happens in high-speed mode with running commentary from 1,000 analysts trying to dissect every move (I'll be on Bloomberg at 11 am, in fact).  What's fascinating about GameStop is that, rather than Wall Street Criminals manipulating the stock, ordinary traders are now doing it.  If we allow ordinary traders to manipulate stock prices, how will Goldman Sachs make money?  And if "Government Sachs" can't make money – Congress springs into action.  When this guy does it, they just yawn:

Let's keep in mind that, for 20 years, Jim Cramer, a self-confessed market manipulator, has gotten on TV and told his army of followers to BUYBUYBUY or SELLSELLSELL stocks every day and, very clearly, they do exactly that at the open the next morning.  Not one investigation has ever been launched yet the moment some ordinary traders do the same thing – CONGRESSIONAL INVESTIGATIONS!

Why Value Investing Works | Seeking AlphaThat's because Jim Cramer works for the elites, sending the beautiful sheeple into the slaughterhouse for the benefit of his Wall Street buddies but the second the sheep object and try to take matters into their own hands, the Wolves of Wall Street cry FOUL! and beg the SEC to step in and stop the madness.  Even our brokers turn against us because we retail invesors are nothing compared to…
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Thrilling Thursday – GameStop $500 is no more Ridiculous than Tesla $900

WTF people?

GameStop (GME) is "only" up 830% in the past 12 months while Tesla (TSLA) is p 1,386%.  The market cap of GameStop is $24Bn and that's completely ridiculous as Best Buy (BBY), who sells $43Bn worth of merchandise and MAKES $1.5Bn/yr has a market cap of $29Bn at $113.  GME, by comparison, has $6.5Bn in revenue and LOST $673M in 2019 and $471M in 2020 and they PLAN on losing $141M in 2021.  

Tesla, on the other hand, isn't just being valued as highly as ONE of their competitors – they are being valued higher than ALL OF THEIR COMPETITORS COMBINED.  McDonald's is worth more than all fast food, Wal-Mart isn't worth more than all of retail, not even Amazon is worth more than the rest of the on-line competition but TSL50A has idiots paying $850Bn at $864 compared to $200Bn for Toyota (TM) at $145.   Toyota has $275Bn in sales and MAKES $17Bn for a p/e of 12 while TSLA has $30Bn in sales (1/10th) and $2.5Bn in profit (1/7) yet TSLA is valued at 340x earnings, 28 TIMES the value Toyota commands.

When a game is ridiculous, irrational and the rules keep changing – it is best not to play. 

 

IN PROGRESS

 

 

Weakening Wednesday – GameStop and Bust!

$4,000 per contract (you're welcome)!

That's the profit from yesterday's Russell (/RTY) Futures shorts at 2,180 as we're now falling back all the way to 2,100 and we'll stop out 1/2 here to lock in $4,000 per contract and put a stop on the other 2 at $3,500 per contract (2,110) so our worst case is an average exit of $3,750 but we can make another $2,000 per original (4) contract if we have another 80-point drop from here.  

We don't try to make a massive killing on the Futures, they are just bonus protection until our hedges begin to kick in and they allow us to make quick profits when the market has a little dip.  In yesterday morning's PSW Report (just $3/day to make sure you don't miss it!), we also played the Dow Futures (/YM) short at 31,000 and we're below 30,500 now (1/2 stop, rest at 3,600) for another $2,500 per contract win and the Nasdaq paid $20 per point from 13,500 (a GREAT shorting line) to 13,350 ($3,000 per contract) and we set the stop there at 13,375 on the other half and the S&P (/ES) Futures paid $50 per contract from 3,850 to 3,800 ($2,500/contract) and you KNOW 3,800 is going to be bouncy so we stop out there completely and simply re-play it if it fails but why play out the bounce?

You HAVE to have hedges in such a clearly broken market.  We went over our main hedges in our Short-Term Portfolio Review two weeks ago and discussed it in that day's Live Trading Webinar, so I'm not going to get into it here but we had a good $293,000 worth of protection, not including A LOT of additional profit if TSLA and CMG ever come down to Earth.

Thank goodness we didn't bet against GameStop (GME), which left the Earth last week and is now passing Jupiter, not at $147, which was yesterday's close but at $225 now – and that's AFTER pulling back from $350 in yesterday's INSANE after-hours run-up that bought the market cap of GME to over $22 BILLION.   

That's for a Retailer who makes $400M in a good year…
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Testy Tuesday – S&P 3,850 Edition

S&P 3,850.

That's 1,000 points (35%) over our Must Hold Level though we have discussed how low tax rates are adding 10% and stimulus is adding 20% so that accounts for most of the growth over the past two years.  It's still a very impressive chart and, if we can hold this level (I doubt it), the next stop will be 4,000, or 3,990 to be exact, at the 40% line.  

Of course, Biden has been elected so the additional $1.9Tn in stimulus (10% of our GDP) is baked in for Q1 and Biden has said he will maintain the low Corporate Tax Rates set by Trump (for now) so we STILL have that 30% underlying support to the index – as long as no one changes their minds.  The other 5% depends on earnings and so far, so good as most of the reporting companies have managed not to disappoint this quarter.

Overall, earnings for S&P 500 companies, DESPITE 20% of our GDP being direct Government stimus and another 20% of our GDP as Fed stimulus, are down 14.4% from last year but most companies are projecting some form of normalization in the second half and Wall Street wants us very much to look forward to a virus-free future and not back to a virus-ravaged past.  

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The US is, in fact, at Biden's goal now of vaccinating over 1M people per day (1.13M yesterday), but that needs to be improved upon as that's just 90M people or just over 25% of the population by the end of April – certainly not the "normalcy" Corporations are looking for.  Even 50% by the end of July would make for a poor Q3 so we must do better but, thankfully, in countries where they are vaccinating heavily, infection rates are dropping rapidly.

Israel is leading the World so far, with almost half their population vaccinated already.  UAE is at 25% and US is at 6.87% but it's only Biden's first week in office, so hopefully we can get things going and start acting like a First World Country again.  

Israel is vaccinating 2 out of 100 citizens per day and they expect to be at 100% by March. …
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The Market Week Ahead – Earnings Start to Matter

ImageNow we're getting some action! 

About 1/3 of the S&P 500 reports this week so there should be lots of opportunities for baragain hunting – unless, of course the earnings are not good and we finally begin to deflate this bubble market.  This will be the first week in 4 years that there is likely to be more focus on the markets than the Government as the Government goes back to "normal" functions with a President who doesn't try to dominate the news cycle.  

That shifts the focus back to earnings but one might wonder how earnings can possibly justify the sky-high valuations we have been giving most stocks in the past few years.  According to Jill Mislinsky at DShort: "The peak in 2000 marked an unprecedented 129% overshooting of the trend – substantially above the overshoot in 1929. At the beginning of December 2020, it is 154% above trend. The major troughs of the past saw declines in excess of 50% below the trend. If the current S&P 500 were sitting squarely on the regression, it would be at the 1457 level."

154% above treand.  That's a lot!  While I don't see the S&P going all the way back to 1,457, I do see a 20% correction almost inevitable, back to about 3,000 and, while we may go higher, we'll still pull back at some point so 3,829 (this morning's open) is a very tough pill to swallow on the S&P 500.

We do have a Fed Meeting on Wednesday and the Chicago Fed National Activity Index was in-line this morning but again, 20% of our GDP is stimulus and we are celebrating very slight growth – this is a very dangerous thing to get used to!   

Dallas Fed comes out at 10:30 and tomorrow we get Home Prices and Consumer Confidence, Wednesday it's Durable Goods, Investor Confidence, Business Uncertainty and the Fed and then Thursday we have GDP, Retail Inventories (very important after Christmas), New Home Sales, Leading Economic Indicators and the KC Fed.  Friday we finish the week with Personal Income, PMI and Consumer Sentiment – a very busy data week with NO Fed speak – other than Powell's press conference on…
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Friday Failure – Europe in a Recession Seems to Matter

Recession in Europe – again?

The eurozone economy has suffered a weak start to the year, with high coronavirus infection rates and government restrictions increasing the risk of a second recession since the pandemic first struck last year.  Fresh Covid-19 outbreaks that authorities have struggled to contain are continuing to weigh on economic activity and have damped expectations for a strong global recovery in the first half, a reality that US Investors, so far, have refused to face.

In the early months of the year, a number of large economies face the threat of declining output as restaurants, cinemas and a wider range of businesses that involve close physical proximity are closed or have had their activities severely curtailed.  Data firm IHS Markit said its Composite Purchasing Managers Index, which measures activity in the manufacturing and services sectors, for the eurozone fell to 47.5 in January from 49.1 in December. A reading below 50 points to a decline in activity.

A similar survey for Japan pointed to a bigger contraction in the services sector, while figures for the U.S. to be released later Friday are expected to point to a slowdown in the services recovery.

Antimicrobial resistance - Time to behave like a real Ostrich - Innovate UKSeriously people – we're not shocked by this, are we?  Most of the investing community is playing ostrich and have been keeping their heads firmly in the sand and pretending the vaccines will somehow "fix" everything but we've had flu vaccines for decades and, guess what, people still get the flu!  We are simply refusing to have realistic discussions about our future because it's just too depressing to contemplate but to go the opposite way and invest as if things could not possibly be brighter for our near-term future is simply foolish.

We are still in the middle of a Global Catastrophe and it is NOT fixed.  We haven't even seen the real repurcussions of the damage it's caused because we are filling all our economic holes with endless supplies of money and we're acting as if that has no long-term consequences.  Now that Joe Biden is President, the GOP is worried about the debt again and is seeking to block his $1.9Tn spending program.  Then where would we be?


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3,850 Thursday – S&P 500 Seems Comfortable 700 Points Over the Must Hold Line

3,150.

That's still the true value-line we have for the S&P 500 based on old-fashioned notions like actual earnings and actual prospects without the assumption of Trillions of Dollars being pumped into the economy.  It's "only" a 20% drop from where we are now and we were down there as recently as October and below 2,850 in June.  2,850 was our old Must Hold Line but we capitulated by 10% on the assumption that Corporate Tax Cuts would not be going away completely – it's the MASSIVE stimulus that's been an upside surprise since then.  

The Chart above is still using our 2,850 base and the 5% Rule is still working from 2,850 so it's still in play and that means 3,990 is the 40% line.  We had good consolidation at 30% (3,705) during December so we can assume the lines in between that 285-point run will be 20% (57 points) each and that's going to be 3,762, 3,819, 3,876 (which we're testing now) and 3,933.  Those are the lines to watch to see how the S&P behaves during earnings season.

Generally, companies have been beating low expectations and, so far, investors seem to be in a forgiving mood as, for example, United Airlines (UAL) lost $1.9Bn in Q4, which is 15% of their $13Bn market cap yet the stock is only down 2% pre-market.  Why?  FREE MONEY!!!  There will be more free money and no one thinks Joe Biden will let the airlines go bankrupt – even though he is a train guy.

 

IN PROGRESS

 

 

Whipsaw Wednesday – America Heads in a New Direction

Three Reasons Biden Flipped the Midwest - POLITICOWe're going to go back to the future!  

After taking an evolutionary step backwards for four years, it's time to get America back on track and moving forward again in the 21st Century and, hopefully, we still have time to make this decade the Roaring 20s and not the prelude to the second Great Depression.  As Warren Buffett says about investing in companies:.  

“I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”

Well, America has not passed the idiot test but it's still too soon to get a grade as we have to see if Engineer Joe can get this train back on the tracks or if, at this point, he'll merely be able to bring us in for a soft landing.  At 78 years old, even Joe Biden doesn't think he should be President for more than 4 years and is calling himself a "Transition President".  Reagan was 78 when he left office, Trump is 74 but, as Reagan said of Walter Mondale:

“I want you to know that I will not make age an issue of this campaign,” Reagan said. “I am not going to exploit for political purposes my opponent’s youth and inexperience.”

Experience is certainly what Joe Biden is bringing to the table – he's been a Senator since 1973, then VP for 8 years in 2009 and then 4 years of relaxation as a Professor at the University of Pennsylvania while remaining at the forefront of the "Cancer Moonshot" program he started and is likely to bring to the White House officially as one of his first acts.  If you want to know what Joe Biden is really about, watch his eulogy for John McCain.

Politics doesn't have to be ugly and our nation doesn't have to be bitterly divided.  We, the people, are being offered a chance to go forward with the grace and
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Tuesday Already?

January 19th already, too.

This new year is flying by and maybe that's because 2020 seemed to take forever.  Even though we are still locked down, there is, hopefully, light at the end of the tunnel but before we start to take off the masks and party like it's 2019 (remember the good old days), let's keep in mind that there's still a lot of work ahead of us and, according to the CEO of vaccine-maker, Moderna, this Covid virus is in it for the long haul.

On Friday, the World Health Organization urged more effort to detect new variants. The U.S. Centers for Disease Control and Prevention said a new version first identified in the United Kingdom may become dominant in the U.S. by March. Although it doesn’t cause more severe illness, it will lead to more hospitalizations and deaths just because it spreads much more easily, said the CDC, warning of “a new phase of exponential growth.”

Of course, that's good news for Biotech.  

A couple of weeks ago, Moderna's CEO, Bancel said that the "nightmare scenario" where mRNA-1273 provided protection for only a few months was now "out of the window." He added that the slow decay of antibodies generated through the vaccine indicates that the duration of protection of mRNA-1273 could be up to two years.  That news was certainly encouraging for people across the world and for investors. Two years of immunity would mean that Moderna could at least see substantial revenue from its vaccine every other year.  But in an interview with CNBC last week, Bancel gave investors even more reason to be excited. He stated, "I think this will become a market like flu." The flu, of course, is seasonal, with vaccines administered on a yearly basis.

While it's a little goulish betting on the downfall of humanity – it's also realistic as, while we've been distracted, more than 60% of all US Covid-19 cases have been reported SINCE Election Day – just two months!  40% of the deaths have occurred in the last 60 days as well.  The US now has over 24M cases, 14.5M of which came in the last
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Happy Martin Luther King Day

The Rev. Dr. Martin Luther King Jr. at the Lincoln Memorial during the March on Washington on Aug. 28, 1963.It's Martin Luther King day so the markets are closed.

It's a good day to read his "I Have a Dream" speech – really is amazing when you think of the great social change in this nation that was set in motion by one man with a vision.  Here's a great video of the actual event.

It is a testament to the power and effectiveness of Dr. King's movement that, even to those of us who were alive at the time, it seems like it must have been another world where a man had to speak out against such injustice as if it wasn't obvious to the majority of people that segragation, whether by law or by practice, was an outrage.

Sadly, many of the lessons he taught us have already been forgotten, some great quotes:

  • Nonviolence is a powerful and just weapon. which cuts without wounding and ennobles the man who wields it. It is a sword that heals.
  • Nonviolence means avoiding not only external physical violence but also internal violence of spirit. You not only refuse to shoot a man, but you refuse to hate him.
  • It is not enough to say we must not wage war. It is necessary to love peace and sacrifice for it.
  • The hope of a secure and livable world lies with disciplined nonconformists who are dedicated to justice, peace and brotherhood.
  • Human progress is neither automatic nor inevitable… Every step toward the goal of justice requires sacrifice, suffering, and struggle; the tireless exertions and passionate concern of dedicated individuals.   
  • Never forget that everything Hitler did in Germany was legal.
  • We will remember not the words of our enemies, but the silence of our friends.
  • The past is prophetic in that it asserts loudly that wars are poor chisels for carving out peaceful tomorrows.
  • A nation or civilization that continues to produce soft-minded men purchases its own spiritual death on the installment plan.
  • A nation that


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