Entries by Phil

Tumblin’ Tuesday (again) – China Retaliates on Trade (again)

Image result for trump china trade cartoonGee, who could have seen this coming?

China did what they said they'd did and took steps to retaliate against Trumps latest round of sanctions only China is doing it by making a LEGAL appeal through the World Trade Organization while Trump just does whatever the F he wants because, you know, the US isn't part of the World anymore and we don't have to play by THEIR rules.  After all, Trump has already said "Trade Wars are good, and easy to win" and when has our President ever lied to us?

As noted by the FT: "It is possible that Mr Trump would accept a symbolic victory. But Mr Xi cannot afford a symbolic defeat. The Chinese people have been taught that their “century of humiliation” began when Britain forced the Qing dynasty to make concessions on trade in the 19th century. Mr Xi has promised a “great resurgence of the Chinese people” that will ensure that such humiliations never occur again."

Image result for trump china trade cartoonThis is not just about trade, so it won't be easy to "fix".  This is about China's emergence as a global leader, something that really bothers Trump & Putin as they take a back seat to Bejing in setting the Global Agenda and China has their 2025 program – a 10-year plan for China to dominate Trade and Tech in the 21st Century.  Rather than promoting similar efforts at home by encouraging innovation and R&D, like China is doing, Trump just wants China to stop it.

Seen from Beijing, it looks as though the US is trying to prevent China moving into the industries of the future so as to ensure continued American dominance of the most profitable sectors of the global economy, and the most strategically-significant technologies. No Chinese government is likely to accept limiting the country’s ambitions in that way.

Image result for china rare earth trade warUnfortunately, Trump has not learned or doesn't want to learn from Nixon's great mistake which is:  Don't get into trade wars with people you depend on and with Nixon it was OPEC and oil while Trump doesn't
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Just Another Manic Monday

The Dow is up 116 points as of 8am.

Why?  Just because, it seems.  Asia closed down on Trade War fears but Europe is up slightly and US Futures are tracking higher on very thin trading (it's Jewish new year, people have off in NY) as Trump tweets about how GREAT things are, even though he's clearly lying as the S&P 500 was at 2,200 when he was elected and 2,300 when he took office but, even since the election, 2,850 – 2,200 is 650 and 650/2,200 is 29.5%, not "almost 50%" but, amazingly, no one bats an eye because, for Trump, that's a lot closer to the truth than most of the things he says…

We're just going with the flow for the moment.  We did add a bearish Top Trade on the S&P (SDS) last week but we also put out bullish Top Trade Alerts on  DLTR, OIH, HBI, LB, WPM, AAPL, MU and PZZA since Aug 15th, so still finding plenty of bargains – even in what we consider to be a very toppy market.  As I've said a lot recently – it's a lot like 1999 but the market doubled in 1999 before actually failing in 2000 so, if we are in a bubble – we can play it bullish while it lasts – as long as we are well-hedged and ready to act if things do begin to fall apart.

When a market is hot, we look for OPPORTUNITIES to pick up stocks that get sold off for bad reasons.  Back on Aug 3rd, China Mobile (CHL) got hit on news that two of their rivals were merging but CHL is so big, they are the reason their rivals have to merge to compete so I said to our Members:

CHL – Another one we just added to the hedge fund (also uncovered).  My notes to Doug were: They may get less per subscriber but China is smaller than the US so they are covering less area but they have 887M subscribers.  They have rich people who are as rich as our rich people and those people are willing to pay whatever for high-speed services.  China's Top


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Non-Farm Friday – Is America Working?

Another month another 200,000 jobs?

As we discussed last month, 200,000 jobs is not growth, that's just our population growth.  Job growth, in fact, has slowed markedly over the past 18 months and this chart shows you how far behind Obama's Trump's are falling – especially in the struggling Retail Sector, where jobs are trending negative over the previous period.  

Obama is credited with a net gain of 11.6M jobs during his tenure but that includes 2009's 3.5M lost jobs detracting from the 15.1M jobs that were gained under 7 years of Obama budgets and also not counting the 8th Obama budget – the one Trump takes credit for in his first year for another 2.4M jobs gained.  

Of course, so far, Trump's method for creating jobs has been very expensive as the deficit in 2017 was $666Bn (Obama's last budget) but this year we're already over $1Tn (up 50%) and, according to Trump's own budget, there's no end in site to Trillion-Dollar deficts through 2024, so another $8Tn will be added to the $20Tn we already owe – if all goes well.  When you consider the average wages paid for a job is $38,000, $1Tn SHOULD buy you 26,315,789 more jobs – each year!

Image result for trickle down economics trumpObviously, that's not happening but let's say that $666Bn of deficit was unavoidable and Trump spent just $333Bn extra Dollars to create jobs (wasn't that the point?).  Well, at $333Bn/2.4M it turns out Trump is spending $138,750 per job created and, as noted above, they are not really being created – we're just keeping pace with the population growth of 0.8%.

The rest of that $333Bn National Debt that Donald Trump is forcing your family to take on is going to pay for Tax cuts for Billionaires – like Donald Trump – sucker!  Notice even the GOP, who don't shy away from bullshitting when it suits their purposes, have even stopped saying the words "job creators" as it has, at this point, been exposed as the total farce that phrase always was.  I wonder what the BS will be for the next election?

 

IN PROGRESS

 

Floundering Thursday – Indexes Struggle to Get Back on Track

Just a minor set-back – so far.

We've lost a bit of ground in the past week but only halfway back to where we were two weeks ago (2,850), when we broke out to new highs – that's still pretty strong but, unfortunately, there's an outside chance that Trump could push through his next $200Bn worth of tariffs on China this afternoon and Asian markets were off 1-2.5% this morning but US Futures SEEM not to be worried at all, as they are up slightly.

I say SEEM because the reality is that the Dollar has dropped 0.6%, from 95.60 at yesterday's open to 95 this morning and that SHOULD be popping the markets 0.6% but they ae just flat so all this is doing is masking additional weakness.  Silver (/SI) is up to $14.30 so congrats to the players on that one as we're now up $1,500 per contract.  Even Gold (/YG) woke up and is now back at $1,211 but this is a Dollar-related move and can unwind quickly if the Dollar bounces.

Things can get ugly quickly on the trade front as China has already warned of retailiation over any new tariffs – so far they have matched the US dollar for dollar.  "If the U.S., regardless of opposition, adopts any new tariff measures, China will be forced to roll out necessary retaliatory measures," according to the country's commerce ministry.  Due to China's massive trade surplus over the U.S., many expect the PBOC could further devalue its currency or crack down on U.S. firms inside the country.

Meanwhile, U.S. and Canadian negotiators are engaged in "intense" NAFTA discussions, according to President Trump.  "If it doesn't work out, it'll be fine for our county but it won't be OK for Canada," he added. "I think they will treat us fairly."  Talks broke down last Friday after the two sides failed to reach a deal that would bring Canada into a new trilateral trade pact with the U.S. and Mexico.

It's very unclear what Trump s even trying to accomplish with Canada as we have a fairly balanced trade relationship with them so Trump's complaints that Canada is taking advantage of us makes no sense at all.  Even Mexican trade is barely out
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World of Worries Wednesday – Emerging Markets, Trade Wars Weigh on Markets

Wheee – this is fun!

Congratulations to those of you lucky enough to get the PSW Report yesterday, where we told you about our Gasoline (/RB) Futures Shorts at $2.05 as we plunged all the way to $1.98, which was good for 0.07 per contract and, while 7 cents may not sound like much, it was actually a huge one-day move and, at $420 per penny, per contract, it was good for profits of $2,940 for each contract – what a great way to start the month!

Of course we began shorting /RB on Friday, at $2 so our average (as we doubled down) was $2.025 so we only picked up net 0.045 for $1,890 per contract gains but it was on 2x so it all works out in the end!  Silver (/SI) was also a huge winner as it popped back from $14.13 (even lower during the session) to $14.20 for an 0.07 gain and /SI contracts pay $50/penny so $750 gains per contract there as well.    As I said to Investing.com yesterday:

“From here, we’re expecting RBOB to go down to between $1.80 and $1.85 over the next month and stabilize there…There’ll be the traditional pre-Thanksgiving run up, where it could get a little higher, and we’ll be shorting it again at that time.”

In Davis’ logic, gasoline’s surge to 3-1/2 year highs of $2.2855 in May, matching US crude’s rally, was fundamentally flawed.


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Tuesday Trade War Worries and Toppy Trading Patterns Persist

Image result for trump vacation cartoon

Welcome back! 

I hope everyone had a nice vacation.  Seems like nothing particularly blew up over the holiday weekend yet the market gave back 100 Dow points early this morning and we're back at 25,900 on the /YM Futures and below 2,900 on the /ES Futures and let's not forget that 2,872 is where we topped out in January and that too was a big run up but then we completely collapsed back to 2,532 for a quick 10% drop in just two weeks.  The high came on Jan 26th, to be exact, and that was AFTER Trump declared a Trade War for the first time that Tuesday

This week, Trump has "fixed" Mexico, though many "fake news" analysts say it's not fixed at all and still no deal with Canada and supposedly (also you have to believe what Trump says) we will be adding another $200Bn of tariffs to China, which would more than double all the tariffs put on all countries combined to date!  Yet the market seems generally unaffected – for now.

That Thursday (Jan 25th), I marvelled at the fact that only 7,826 (11.4%) out of 68,119 investors polled were bearish on the markets as we tested record highsNow it's down to 6,243.  This week's news cycle will be taken up with Kavanaugh's Supreme Court nomination hearings but it's a pretty big data week with ISM and Construction Spending this morning, Auto Sales tomorrow, Productivity, ISM Services and Factory Orders on Thursday and the Big Kahunah, Non-Farm Payroll on Friday.   

September, of course, closes out the 3rd quarter and we have a Fed meeting on the 26th where the Fed is very, very likely to hike rates.  As you can see on this chart, the Fed is still a hike below the average prediction of 2.25% by the end of the year and next year, the target is more like 3.25% so there's a lot of hiking ahead of us – usually not great for the market.

 

Trade still seems to be dominating the market talk at the moment.  According to Bloomberg, Trump even gave us a day…
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Friday Failure – China Trade War Heats Up While Canada Cools Off

Image result for trump china trade war cartoon$200Bn more in tariffs.

Now are you paying attention?  The market sure did yesterday when Trump said he wants to move ahead with his plan to impose $200Bn of additional tariffs as soon as next week, just two days after tweeting that he and President Xi would work out their trade deal, which drove the market to new highs.  Companies and members of the public have until Sept 6th to submit comments on the proposed duties, which cover everything from selfie sticks to semiconductors. The President plans to impose the tariffs once that deadline passes.

Trump cut off negotiations with China because of what he perceives as Beijing’s lack of cooperation in nuclear talks with North Korea, one of the people said. The president wants to squeeze China, believing the U.S. has leverage over Beijing, that person said.  Trump also threatened to pull out of the World Trade Organization as they have not been behind his illegal sanctions so far – that alone threatens to unwind the entire Global Economy but, thank Goodness, noboday takes the President seriously when he says insane things like that.

Trump also said (yes, he just keeps going) that the EU offer to scrap auto tariffs "is not good enough" meaning – well let's not pretend to know what he means but if NO TARIFFS are not good enough then I guess he wants the EU to offer incentives for their people to buy American cars?  I was going to say that's Batshit Crazy but then I thought that was going to far but then I looked up the definition of Batshit Crazy and yes, Trump is BATSHIT CRAZY!  

Image result for trump crazy

You know, after 8 years in office and millions of photos, there are NO pictures of Obama snarling at anybody or about anything.  Not even Bush II has any snarly pictures but he may tie Trump for dumb-looking pictures.  No snarly pictures of Clinton either and I couldn't find many Bush I pictures as he's pre-internet but I'm sure he snarled at least once so let's say you have to go back at least 30 years to find a President who even looks like…
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Thursday Thoughts – Window-Dressing Flatlines Markets into the Holidays

We've gotta hold those highs, right?

There's nothing Fund Managers and Brokers hate more than to have their clients talking about pulling money out of the market around the barbeque.  With a holiday weekend approaching, we can expect all the stops to be pulled out to maintain our record highs but what happens when the big boy traders come back from their summer vacations is anyone's guess.  

At the moment, as you can see from the SPX chart with volume, there is a huge surge, like clockwork, at the end of each trading day, that pushes the index higher into the close and even higher overnight (when there is no volume at all) and that has accounted for about 1/2 of the S&P 500s gains for the week.  The rest of the gains came from a new trade deal with Mexico that's worse than our old trade deal (NAFTA) and now Trump says he will have a deal with Canada tomorrow, probably also worse – so of course the markets should be higher…

It's all nonsense, of course but Alice in Wonderland was all nonsense for 90 minutes and then she woke up.  It's hard to say when investors will wake up but they usually do at some point but, as I noted yesterday, things can get a lot sillier before they get saner.  

Oil (/CL) is hitting our silly target of $70 this morning and we discussed shorting at this line in yesterday's Live Trading Webinar and I reminded our Members in Chat this morning that we are shorting below the line only, with tight stops above but I'm willing to lose a few Dollars while wating for the nice, post-holiday pullback we're expecting.  

Oil and Gasoline (we're short that too) are things that are bought by the masses, not just rich folks and, although our GDP is expanding at 4.2% in Q2 and people like us (who have enough savings to be able to play with stocks) are feeling pretty good, economically, a new study by the Urban Institute reminds us that 4 out of 10 Americans are struggling to pay for their basic needs such as groceries or housing.  It's a problem even "Middle-Class" households confronting.


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Will We Hold It Wednesday – Record Highs Edition

Image result for nasdaq 1999 chartUp and up she goes! 

As I noted in yesterday's report, we're very likely in the late stages of a bubble rally but you could have said that at any point in 1999, when the Nasdaq rose from 1,750 to 3,750 and you would have been right in early 2000, when it kept going all the way to 4,816 because it went far below that over the next two years but you also would have missed a hell of an opportunity on the way up – as long as you knew when to take a profit…  

I misseed a lot of the rally in 1999 as I thought a double at 3,000 was a bit much and I sat there with my arms crossed, cluck-clucking at all the fools who rushed in for the next 1,800 points but a lot of those guys got very, very rich chasing those crazy stocks and some of them got out ahead of the crash but my takeaway from that was to just be patient, make a bit of money on the way up but I find I'm far more comfortable using that money at the bottom to pick up value stocks for the long-term.

On the whole, I'd rather own a stock at a great price for 10 years and make constant streams of money than jump in on a momentum stock and try to time my exit.  It's a difference in style and it's important to know what kind of trader you are – especially in a rapidly moving market like this one.  While you can make some very nice money buying AMZN for $1,932 and selling it for $2,000 we STILL have a lot of the trade ideas that we played since the 2009 crash like:

AIG at .40, BAC at $4, CY at $5, F at $1.68, FAS at $4.76, GE at $8, GOOG at $350, HCBK at $9.50, HOV at .80, IP at $5.62, IWM at $37, JPM at $16.80, UNH at $20, VNO at $30, WFC at $12, X at $10 and dozens of others that were detailed in that week's wrap-up 

THOSE are the kind
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Toppy Tuesday – S&P 2,900 so it’s 3,000 or Bust!

Wow, just wow! 

As you can see from the chart on the right (click for bigger view), people have been saying this rally is going to end since it started – and that was about 10 years ago at this point!  I'm included in those people as, on several occasions, including this year – I have wanted to cash out and, in fact, I did cash out my kids' college accounts into the Summer (still in cash) and our Hedge Fund is mainly in cash as well as we wait for the market correction (and buying opportunity) that never seems to come.

I was bearish in 1999 and the market went up 100% that year before it collapsed and I was bearish in 2007 and the market went up before it collapsed (about 10%) and I have been bearish most of this year – well, after we did a lot of buying during the February dip.  Even our Big Chart is still full of the old Must Hold levels that there's little chance of re-testing.  Granted they were the levels we set in 2015 for our expectations of the end of 2017 but we never changed them because we kept thinking the move 20% above our lines would correct – that was incorrect…

Being cautious hasn't stopped us from making money but we certainly could have made more money if we hadn't hedged (and yes, we just put more money into hedges yesterday).  Still, that's not the right way to play but we do need to make some realistic assumptions about where the bottom of this new range should be and it's probably not 2,200 on the S&P – which would be a 24% correction from here.  

Image result for S&P 500 price earningsWithout getting into the whole "fair value of the S&P" which we do when we are setting our major Must Hold Levels, what has really changed since 2015?  Well mostly we have higher wages, a stronger GDP, lower unemployment and much lower taxes – mostly good things for the bottom line of S&P 500 companies.  Good but not so good they should be trading at 35x Cash Flow…
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