Entries by Phil

Fallback Friday – Trump’s Parade Gets Rained On, S&P Teases 3,000

Wow are "THEY" trying hard to sell you this rally.  

The official close on the S&P 500 on Wednesday was 2,995.82 but they pushed and pushed once the volume went down at the close and hit 3,000 after hours but it all began to unwind at 3pm – as soon as the European Markets opened and the volume picked up.  That's a pretty strong indication that a lot of this "rally" is "fake, Fake, FAKE" but we can reserve judgment until 8:30, when we see the Non-Farm Payroll Report and the market's reaction to that.

As I noted on Tuesday, we're at the top (probably) of a 400-point run from 2,600 and, according to our fabulous 5% Rule™, we can expect a 20% pullback of this 15% move higher (2,990 actually) soi 400 points x 20% is 80 points back and since it's really 2,900 and since we like to round, we can say we expect to see 2,900 for a weak retrace of the run and somewhere between 2,800 and 2,840 (the real strong retrace from 3,000) should be a healthy pullback from here so that's the tendency we expect and now we'll see wha the data says.

8:30 Update:  Up 226,000 jobs!  That just blows away expectations of 160,000 and May was revised even lower, to 72,000 but this makes that look like an aberration and not a trend.  Unfortunately, Average Hourly Earnings are only up 0.2% so people have jobs but they aren't making any money.  You would think the markets would pop on that many jobs but no, too many jobs means the Fed is less likely to hike and their next meeting is July 31st, before the next jobs report – so this is what they'll be looking at and it would seem foolish for them to cut with these kinds of jobs numbers – where a HIKE is usually mandated.


"Fortunately" the jobs gains are mitigated by low wages so the Fed doesn't have pressure to raise rates but they would really have to twist themselves into knots in order to give Trump the cuts he wants and, of course, strong payrolls mean a strong demand for the Dollar and that's sending the Dollar up 0.5% which
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Philstockworld Mid-Year Portfolio Review (Members Only)

Image result for one million dollars animated gif$2.1 MILLION Dollars!

$2,093,568 to be exact in our primary portfolios, the paired Long-Term Portrfolio (LTP) and the Short-Term Portfolio (STP) whose job is to protect it.  It's really nothing to crow about as we're actually DOWN $40,487 since our June Review (through mid-May) though these numbers are only through mid June and the month finished with quite a bang.  We close our months on option expiration day, of course, so we won't really know how the first half went until after July 19th and, by the time I consolidate that into a review it will be August and it would sound silly to call that a mid-year review – so that's why I'm calling this one a mid-year review.

While semantics are fun, let's get back to talking about trading strategies:  Our intention over the summer was to lock down our portfolios in neutral as $2.1M is up from our Jan, 2018 start with $500,000 in our LTP and $100,000 in the STP so, overall, we're up $1.5M (250%) in 18 months and, with China Trade still up in the air, I'd rather protect my $1.5M in gains than risk them trying to make another $150,000 (10%).  That's one of the problems you have as you make more and more money – you spend a lot more time protecting your wealth, rather than concentrating on making more wealth.

That's why we like to have multiple virtual portfolios at PSW.  The LTP/STP is where we keep the bulk of our investing capital and they follow a strategy that is constantly hedging to protect what we started with.  Nonetheless, they can still make spectacular gains but this cycle we have a very odd situation in which we have usually guessed correctly when we have added and removed hedges in the STP, causing an unusual $600,000 gain in a portfolio that usually loses money while the LTP gains.  

It's been a very unusual market with lots of dips and recoveries and that kind of suits our trading style perfectly as we tend to scale into positions, buying small, conservative spreads to begin and adding more and widening the spread on dips.  Another strategy we use is rolling our profits and the leads to a lot of our big gains.  For…
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Why Bother Wednesday? Low Volumes Ahead of the Holiday

July 4th Week ProductivityThere's not much going on this week.

It's only a holiday for the US tomorrow but so may people take vacations this week and the people not on vacation are planning parties and such and no one is in the mood to work – so very little goes on.  Even as I go through the news I find a lot fewer articles being published – writers take time off as well.  So no one is making news and no one is reporting news and Trump is distracted by his parade – let's just sit back and enjoy the quiet...

I didn't find a chart for a Thursday July 4th but that's probably just a flatline into the weekend – this is usually the week I take my family on vacation but my girls are getting older and have plans with friends and we'll do a family thing next month (when it's less convenient for me).  Anyone who's been a boss knows this week is second only to Christmas in not getting anything accomplished but there is a Non-Farm Payroll Report on Friday, for some reason, so we can't completely ignore the markets.  

The Futures are up a bit this morning as Europe has nominated the IMF's Christine Lagarde to replace Draghi at the ECB.  I don't think Lagarde is going to be quite the dove they think she will be as she's been quick to lend money to struggling nations but does not sit on the lap of Goldman Sachs, as Draghi did (his previous employer).  A truly independend ECB would be a great thing – but not so much for the markets.  

Meanwhile, my theme of the week is gathering steam as now 82% of the companies pre-announcing earnings revisions are guiding down and Analysts have now downgraded the most stocks since June of 2017, though that's not really something to worry about since 2017 was a great year where we barely dipped.  It's the fact that we're getting worse and worse that should be a concern, not the comparison.

In June, 116 more companies had their earnings forecasts cut by analysts than raises – that's 20% of the S&P 500.  “There is some sagging in
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Testy Tuesday – Can We Hold onto the New Highs?


That's where the S&P 500 crested yesterday and now we're back to 2,965 this morning after falling to 2,855 yesterday afternoon.  We're so close to 3,000 that is makes no sense at all to be bullish into the holiday weekend as S&P 3,000 is going to be a tough line to cross as it's up 2,334 points (350%) from the March 2nd, 2009 low of 666.  

Clearly companies are not making 350% more money than they did in 2009 but that's a false benchmark because the stocks were clearly UNDERvalued at the time and 666 was stupidly cheap for the S&P 500 but S&P 3,000 is still going to cause people to question valuations and, as I noted in yesterday's Report, Corporate Profits are very unlikely to justify these record highs and we begin to see those results on July 15th, as Q2 earnings begin coming in volume. 

The run to 3,000 has come off our most recent consolidation at 2,400 and before that 2,000 and there's nothing wrong with moving up 20% (400 points) between 2015 and mid-2017 – that's pretty normal for 2.5 years but, just 2 years after that, we're up 600 more points and that's probably a bit much.  We WERE having healthy consolidation around the 2,800 mark in 2018, when S&P 500 companies combined for $134.95 per share, giving the S&P 500 a Price/Earnings Ratio of 17.78 at 2,400.  For Q1 of this year, we are pacing at $135.73, just a 0.5% improvement but, as we close in on 3,000 on the S&P, that's up 25% – and the P/E Multiple at 3,000 is 22.10 and that's up 24.3% – see the pattern?  

I know it may not seem like it when you have a runaway market and it's easy to say that Fundamentals don't matter but they do to the people who aren't trading every day.  The silent majority of traders are the buy and hold fund managers who hold 





Monday Market Movement – Trade Talks Back on with China!

The Dow is up 250 points pre-market.

That's after bursting over 100 points higher in the last 30 minutes of Friday's session.  Overall, it's a very low-volume rally, mostly short covering (we will be covering some shorts ourselves) as Trump met with Xi at the G20 and he decided Huawei isn't spying on us after all (despite slandering them all over the world) and that Trump will not put tariffs on another $300Bn worth of Chinese goods but he is keeping the tariffs already in place.  Keep in mind this is all to arrive at an eventual deal that is not likely to be substantially different than the deal he broke last year – so why all the celebration?

As you can see from the chart above, earnings haven't grown at all this year and it's been Valuation Expansion or Multiple Expansion that's accouted for 90% of the move in the S&P 500 for the first 6 months.  Very simply, we are paying much more for the same earnings as last year.  Granted a lot of companies did us "China" to excuse their shortfalls and we can imagine, with the Trade War hopefully winding down, that we'll get some real growth but that doesn't mean we're not paying too much for the growth we do get.

Notice that 87 S&P 500 companies have already pre-announced negative guidance for Q2 and, when we get back from the Holiday weekend next Monday, we'll begin to see those Q2 earnings reports.  So, while we hedged heavily into the weekend – just in case the G20 went badly – we will be using those hedges into Q2 earnings season, albeit less aggressively as we sell some covers as well.

We know the Fed is certainly in no hurry to raise rates, so that's a big plus for the market but I'm not so sure the Fed is looking to lower rates as we are no in the 121st month of a market expansion – the longest in history (and 104 (86%) months of it came before Trump was President – in case you are wondering).

Nonetheless, Economists surveyed by Bloomberg see a 30% chance of recession over the next 12 months and growth…
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EOQ Friday – Quarter Closes with G20 Meeting in Play

Image result for g20 cartoon japanWe've got high hopes!

Whatever problems the World has, we like to think our leaders are going to solve them and there is often a lot of faith put into these G20 meetings and, while it is great that our leaders get together and talk once in a while – it's really no different than any executive retreat – not a whole lot actually gets done – it's mostly an all-expense paid week off for 20 of the most powerful people in the World.

They do get together and issue a "communique" but already at this meeting France is insisting that the G20 make a firm statement on Climate Change and re-commit to the Paris Accords, which is something they have all done except Trump so it's really aimed at just him.  Japan wants the communique to promote free trade and again, this is all about Donald Trump and trying to get him to agree with the other 19 World Leaders.  

We always have high hopes into these meetings but I'll remind you that the last G20 Meeting was in Buenos Aires on December 1st of last year and that was a Saturday and on December 3rd the Dow topped out at 26,000 and by Christmas Eve (24th) we were below 22,000 – a 4,000 point correction after the G20 Meeting – so forgive me if I'm just a little sceptical as we head into another one pressing new market highs (26,650).

At the December Summit, the agenda was to discuss the Future of Work (as more and more people are being replaced by robots), Infrastructure and Sustainable Food along with the need for Crypto-Currency Regulation and resolving the Trade Wars.  In fact, the US, Canada and Mexico sight NAFTA – oh, excuse me, the United States-Mexico-Canada Agreement, which is not just NAFTA again – and even that still hasn't been ratified 6 months later.  

While the other 19 nations at the last Summit recommitted tot he Paris Climate Accord, saying it was "irreversible and committing to its full implementaion" they also aknowledged that the United States withdrew from the Agreement, so I imagine when France says they wants a statement on Climate – I assume they mean from the 19 rational countries because good luck changing Trump's mind on that one! 





G20 Thursday – World Leaders Gather as Storm Clouds Form Over Global Economy

Trump is on the other side of the World.  

Unfortunately, that doesn't stop him from tweeting and the President was active last night, sending this very scary video out to his followers while calling the Democratic Debates "BORING!" (they were, but it's not polite) and calling NBC and MSNBC "FAKE NEWS Orgainzations", which undermines the basic principles on which our democracy was founded.  All in a day's work for the President...

On his way to meet with the other World leaders, Trump insulted all of our allies saying that, if the United States were attacked, Japan would only “watch it on a Sony television.” He called Germany a security freeloader and chastised India for raising tariffs on American goods.

Trump has meetings scheduled with each of those leaders tomorrow so we're off to a great start already.  The President has already spoken favorably about Vladimir Putin and told reporters that what they discussed in their meeting would be "none of your business" and Saturday Morning, Trump is scheduled to meet with Mohammed Bin Salman, who had Jamal Khashoggi murdered and dismembered – Trump had nothing bad to say about him either.

As noted in the New York Times, Trump also continues to repeat his lies about NATO – our primary military alliance:

After assailing the treaty with Japan, Mr. Trump went on to repeat what has become a perennial attack on Ms. Merkel’s Germany. “We pay for close to 100 percent of NATO,” he said. “People don’t know that. We pay for close to that because Germany doesn’t pay what they’re supposed to pay, and out of the 28 countries, seven are paid up.”

As he has consistently done since taking office, Mr. Trump mischaracterized how NATO works and

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What Now Wednesday? Powell Disappoints, Mnuchin Makes Promises…

Wheeee, what a ride! 

As we expected, Powell's speech yesterday was a disappointment and the Dow fell 200 points during Tuesday's session and you can see why we're using the DXD ETF as one of our primary hedges.  We stayed down overnight but, early this morning (about 5am) Steve Mnuchin jumped on CNBC at midnight in Bharain to tell Hadley Gamble that the US and China were "90% of the way there" on the path to a trade deal.

This is, of course, meaningless nonsense as we're the same 90% of the way there as we were when trade negotiations broke down a few months ago so Mnuchin is simply tearing a page out of Chamberlian's book to declare "Peace in our Time" to score points at home, no matter how untrue the facts of the matter are.  Still the market responds like Pavlov's dogs EVERY time someone in the administration says we are making progress on trade, and this morning was no different with the Dow Futures (/YM) popping over 100 points (0.4%) on the "news", we get a rally.  

Image result for trump xi trade cartoon

We had the same "good news" at the last G20 meeting in December, when the headlines were: "Donald Trump and Xi Jinping declare trade truce at G20" yet here we are, 7 months later with even more tariffs and even less progress.  We were 100% then, we're 90% now – what exactly is the market celebrating?

Certainly it wasn't the Data as we had TERRIBLE numbers from the Richmond Fed, New Home Sales missed by 10% and Consumer Confidence dove 10% in Expectations and 8.3% overall.  Consumer Confidence is now at a 2-year low while Economorons predicted it would be higher – which shows you how clueless the people making pronouncements on this economy truly are!  

As you can see from the chart, forward expectations (red) re now lower than they were when Trump took office in January of 2017.  If we see the other segments move lower to join them, then we really have to question:

  • 700 (31%) S&P

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Toppy Tuesday – Trouble at 2,950 – Again

At least it's not 2,800.

The S&P is back up 150 points from our DOOM!!! line, which didn't turn out to be very doomy when we failed it 27 days ago.  In fact, we bottomed out at 2,740 and now we're up 210 points (7.66%) and we tested 2,860 and failed that but never came close to the +15% line at 2,990.  2,925 is the +12.5% line so we'll keep an eye on that but if the Russell (/RTY) can't get back over 1,550 – there's really nothing to be bullish about.

7,750 on the Nasdaq (/NQ) and 26,800 on the Dow (/YM) are the other lines to watch and we've made good money – over and over again – shorting the Dow Futures at that spot.  We got some good market news this morning as AbbVie (ABBV) is buying Allergan (AGN) for $63Bn, which is 50% over yesterday's closing price.  When investors see one deal like that, they assume the whole sector is undervalued.  ABBV may be overpaying as AGN only has $15Bn in revenues and has lost money consistently and is a bit of a one-trick pony with Botox, which is more than half their total sales but they were supposed to turn things around this year and they did make $2.5Bn last quarter ($5Bn profit projected for 2019) – so I guess they saw something others did not in their due diligence.  

Image result for trump iran cartoonMeanwhile, tensions with Iran continue to heat up as Iran's President Hassan Rouhani called the White House “mentally retarded,” dismissing the Trump administration’s latest round of economic sanctions as pointless and declaring that Iran would not be intimidated.  Rouhani’s personal attacks on Trump are especially significant. In the context of the Iranian political system, Rouhani is regarded as a moderate who is relatively open to negotiations with Washington, and the insults from Rouhani further diminish the already-remote prospects of talks between the two sides. 

Oil (/CL) is hovering around $57.50, which is up 15% for the month so you can thank President Trump when you fill up your gas tank next week.  Gasoline (/RB) is at $1.86 and that's up 12% – so far and we may see $2…
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Monday Market Movement – Post Fed, Pre G20

There's a whole lot of nothing going on this week

We''re in between earnings seasons and in between market-moving events and, though we do have a GDP Report on Friday, it's the third revision to Q1, not a new report and should be steady at 3.1% so – yawn.  It's the 2nd Quarter's GDP that's in trouble as estimates have that down around 2% and possibly below.  Durable Goods come out on Wednesday and, unless they are a strong positive upside (doubtful), we're closing Q2 with a whimper, not a bang.

Other data that matters this week is Consumer Confidence tomorrow along wiht Home Sales and Personal Income and Spending on Friday along with Michigan Sentiment.  Earnings season restarts in the middle of July with bank earnings but, until then, it's pretty much all speculation as to whether things are getting better or worse on the eearnings front.  

One major data-pont that has us worried is Factory Activity, whichhas gone into contraction in the US, Europe and Japan and is sitting at decade lows as of the June surveys.  And it's not just the PMI that's in the dumps, the latest IHS Survey found strong correlation to the downside in all aspects of Manufacturing AND Services:

  • Flash U.S. Composite Output Index at 50.6 (50.9 in May). 40-month low.
  • Flash U.S. Services Business Activity Index at 50.7 (50.9 in May). 40-month low.
  • Flash U.S. Manufacturing PMI at 50.1 (50.5 in May). 117-month low.
  • Flash U.S. Manufacturing Output Index at 50.2 (50.7 in May). 37-month low.