PhilStockWorld April Portfolio Review

Image result for one million dollars animated gif$1,967,325!  

We're going to need 2 Dr. Evils soon to equal our paired Long and Short-Term Portfolios, which began with $500,000 + $100,000 back on October 1st of 2019 (seems like forever, doesn't it?).  So we're up over 200% and that makes $1.8M our stop if the market turns lower faster than we can cover it but we're very well-hedged (see yesterday's Short-Term Portfolio Review) and we actually were pretty aggressive this month ADDING positions to the LTP and those positions have helped bring the LTP to $1,811,018, which is up $109,075 since our March 18th review.

Other than the new trades, we only made 2 adjustments last month – we doubled down on WPM and rolled our short Berkshire March calls to short June calls – very low-touch but, at the time, I said about our positions:

16 trades in this section are good for $357,000 in future profits so, adding up the other half we're projecting $671,000 in future profits between now and Jan 2023 if the market simply maintains these levels (or at least our stocks do).  As noted above, some of these stocks are so good we'd almost rather be assigned than make the rest of our money and some of the spreads are so good that it's hard to find a reason to do anything else but sit back and let them make us richer.  

As usual, this portfolio is too good to dump so we're going to have to take a licking to motivate ourselves to walk away.  As noted before, we have about $600,000 worth of protection in the STP – so we don't think we'll take too much damage on the way down – lots of time to decide to bail and the profits are already built in if the need never comes.  

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Thrilling Thursday – Up and Up We Go!

Retail Sales are Up 10%.

Isn't that exciting?  9.8% actually but close enough.  In a typical month, Retail Sales average $550Bn so up 10% is $55Bn and we only had to distribute $300Bn worth of Stimulus Checks to get it (not to mention March has 10% more days than February, but who's counting?).  Aren't economics fun?  You can manipulate the data to get any result you want if you plan ahead!  

It's my job to cut through all the BS and tell you  what is really happening.  You have to look behind the data, like the price of gasoline rising 10% in February and Gasoline Sales contributed $10Bn (20%) of the $50Bn bump.  Restaurant Sales were up 13.4% as restaurants re-opened and clothing stores jumped 18.3% as people went to malls for the first time in a year.  

This is, generally, good news but to get all excited about a report that, in effect, shows that 20% of the stimulus checks were spent by the people who got them – is not really a solid premise for forecasting future growth.  Nonetheless, the Dow is making new highs and the S&P is near them as it's a good headline to start the day with in the markets.





Record-High Wednesday – Dow 33,600, S&P 4,140, Nasdaq 14,000

Bank earnings are good.  

Well, Goldman Sachs (GS) and JP Morgan (JPM) are good, Wells Farge (WFC) – not so much.  And I'm not sure I'd call JPM "good" as $5.2Bn of the quarter's $14.3Bn in profit came from the release of loan reserves that were set aside last year to cover anticipated loan defaults.  Since the Federal Government threw $6Tn at the economy since then – it turns out they didn't need the $5.2Bn to cover bad loans so now the money (which was always in the bank) is moved to the income side of the ledger.

I have always objected to Loan Loss Reserve accounting because it allows a bank (and many other companies) to take profits that have already been declared (and already moved the stock) out of Cash (showing a loss on demand for taxes, housecleaning, etc.) and then back to profits when they feel like it (to boost the stock price or save a quarter).  Especially for Businesses that are able to buy back their own stock when the price is depressed due to a loss they purposely caused and then, when they want to sell more stock or take bonuses – they simply re-recognize the earnings on demand.  What a scam!

So what we have at JPM is a huge "beat" as profits were projected to be $3.10 per $154 share for the quarter and now it's $4.50 – almost 50% higher than projected.   Even if we assume the bank goes back to "normal" $8Bn quarters, we're still looking at a $40Bn year and you can buy the whole bank for $473Bn – not bad.  We already have Goldman Sachs (GS) in our Long-Term Portfolio (LTP) so we're not going to add JPM and GS also knocked it out of the park.  We were worried about JPM because they have ordinary banking (chase) and we didn't count on those stimulus checks to generate so much business but they did – mainly because the Government wired the money to your bank and didn't just send you a check to spend.  We were far too conservative with GS when we made it a Top Trade Idea for our Members on October 14th:

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Troubling Tuesday – Another Shot Bites the Dust

Now the FDA and CDC are halting the JNJ vaccine.

Like the AZN vaccine, blood clots seem to be the issue and, though they are rare side-effects, better safe than sorry – as long as we have two shots left (PFE and MRNA).  The World, on the other hand, doesn't have two shots left – as the US and Europe have already scooped up all the PFE and MRNA vaccines that are out there for their people and that's why India had 161,736 new cases of Covid yesterday and 879 deaths.  

Don't worry, they still have a long way to go before they beat the US as India has had just 13.7M cases to date and only 171,000 deaths while the US has 31.3M total cases and 562,000 deaths – number one in the World by miles thanks to the leadership of President Trump, who came so close to getting 4 more years to finish the job.

See, this could have been us!  Imagine how great America could have been if we had continued to build on our virus cases and death count, rather than tackling the problem and reversing it the way the cowardly Biden Administration has done.  And that's what I mean about the rest of the World – there is nowhere near enough vaccines to go around and the rest of the World is now having 500,000 people PER DAY coming down with a deadly, contageous, mutating disease and we like to pretend everything is better because we got a shot?  Doesn't the S&P 500 derive almost 50% of their earnings from "the rest of the World"?

You can't fix Covid by vaccinating one country – that's like putting out a forest fire by putting water on one tree.  It's up to the G20 to put together a "moon shot" program to stop this virus and that will require a massive effort to get EVERYONE in the World vaccinated in the same 6 month period – only then do we close the window of opportunity for the virus to pull back and mutate in a vulnerable population until it can beat the vaccines and start spreading again – until we invent a new one and the…
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Mid-April Monday – Earnings Season Begins

GDP estimates are down 40%.

They never should have been at 10% in the first place but we can take the Fed's complete inability to accurately predict what will happen in the economy as a given and just focus on the trends.  Other leading Economorons have been bringing their estimates down as well as the grand re-opening is not going as smoothly as first thought. 

The range of predictions is staggering – from 2% to 7% among those surveyed – leaving a gap the size of Canada's entire economy in-between.  Speaking of Canada, our neighbor to the North has re-locked down their most populous province (and, if you can name 3 you are a leading Canada expert) as their re-opening led to a disastrous resurgence of the virus – particularly the more contageous new strains.  "That's just science" said the mayor of 100 towns and cities as their citizens drove past them on the way in and out of Canada for beer.

Hopefully we'll do better though that's like back last April when we HOPED the virus would stay in China and then we HOPED it would only be a few cases in the US, etc.  Reality can be a real bitch sometimes – good thing we're ignoring it again.  It's the timing of the virus that is killing us – it's too close to Summer to close the beaches again.  Just a few kids eaten by sharks so far – nothing to worry about…

Five states: Michigan, New York, Florida, Pennsylvania and New Jersey account for some 42% of newly reported casesIn Michigan, adults aged 20 to 39 have the highest daily case rates, new data show. Case rates for children aged 19 and under are at a record, more than quadruple from a month ago. There were 301 reported school outbreaks as of early last week, up from 248 the week prior, according to state data.  In addition to school sports, large outbreaks have been tied to the recent Easter holiday and spring breaks.

Driving the overall uptick among younger people in Michigan, and more broadly, is a confluence of fatigue from the pandemic, which is leading some people to engage in more close contact, and the spread of the more transmissible U.K. variant, known as B.1.1.7.  “It…
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Fabulous Friday Finish


That's how much our Long-Term Portfolio has gained since our March 18th review and it's only April 9th!  We only had $634,785 worth of positions on the 18th and now they are $730,400 (the rest is over $1M in CASH!!!) so that is a completely insane gain of 15% in 3 weeks.  That's an annulized return rate of 260% – do you really think this is sustainable?  

I know we keep trying to cash in the LTP but then we keep deciding the positions are perfect and we certainly can't argue with the results but the whole thing simply has to collapse at some point.  It's the market that is causing this idiocy – our strategies just eggagerate the gains as we use options to leverage the upside momentum and, since the broad market never goes down and we tend to make sensible value picks – we make outized gains in our virtual portfolios.   

Gains are, of course, lovely on paper but you have to make sure you keep them and that's the trick as the Fear of Missing Out on a contiued rally tends to keep us from sensibly cashing in our gains.  We're 2/3 CASH!!! in the LTP and most of our portfolios so imagine what we'd be making if we were gung-ho bullish but we learned our lesson in 2000 and 2008 that rallies can end in a snap and you can't simply unwind your positions at the first hint of trouble – that's just not the way it works.  

So we hedge using our Short-Term Portfolio (STP) and, as I mentioned on Wednesday, that $200,000 portfolio was down 3.1% and now, with the extended rally, it's down 15.2%, with the rally knocking us down by about $26,000 so the net gain of our paired portfolios is "only" about $70,000 for the month.  

What that means though, is that the hedges are on sales and, since we just make net $70,000, we should certainly be putting a portion of that money to work buying more hedges.  The STP positions we have at the moment gave us about $500,000 worth of downside protection but now we have $95,615 in additional positions to protect,
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Faltering Thursday – 744,000 People Lost their Jobs last Week


That's AFTER another round of $1,400 checks went out AFTER passing another $2Tn Stimulus Bill and AFTER another round of Business Loans have been handed out specifically to help companies maintain employees.  Prior to Covid, we averaged 220,000 unemployment claims per week – that is "normal" turnover for our 165M-person labor force.   Labor demand will have to bounce back much more before employment returns to pre-pandemic levels. Labor Department data show that although job openings neared a record high in February, the 7.4 Million openings were still fewer than the number of unemployed Americans, which totaled nearly 10 Million that month.

All these people ooing and ahing over the economy remind me of when your Grandpa is terminally ill and you go to visit him in the hospital and he can't talk and he can barely not his head and your relatives say "he's doing so much better today!"  That's our economy now – any sign of life gets people so excited but we are nowhere near where we are and, without constant life support, we'd probably be dead.

Long-Term Unemployment Has Quadrupled, and That's a Problem for the EconomyMore than 4.2M people had been unemployed for six months or more in March, the most since 2013. Total continuing claims, a proxy for the number of people receiving benefits, hit 18.2 million in the week ended March 13th. The majority of these received aid through two federal pandemic programs that were recently extended, what happens if we cut them off?  

We are still a long way from better and that was what the Fed was indicating in their minutes yesterday.  Knowing the Unemployment number would be bad is probably why the Fed scheduled Powell to speak at noon today – in case the markets get into a panic again – especially into the start of Q1 Earnings Reports next week.    

Ontario, Canada is back on lockdown for 4 weeks as they deal with a resurgence of the virus. "The situation is extremely serious. We need to hunker down right now," Ford said at a briefing in Toronto.  "What we do until we start achieving mass immunisation will be the difference between life and death for thousands of people," he…
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Which Way Wednesday – Fed Minutes and Fed Speak to Hold Us Up

What are they so afraid of? 

Gravity, I guess, as the S&P 500 is at 4,063 and the Dow is at 33,333, Nasdaq 13,561 and Russell 2,256.  This isn't just high, this is insanely high.  14,000 on the Nasdaq is 6,000 points higher than 8,000, which wasn't even the March low but it is where Billions of Transactions valued the Nasdaq stocks between late 2018 and early 2020 – two years worth of traders didn't want to pay more than 8,000 for these Nasdaq stocks yet now, after a year of a Global Pandemic – they are racing to pay 75% more money?

Yesterday we talked about the Fed and how they are manipulating the bond market to make it seem like there is demand for bonds and a side-effect of that is they are flooding the system with money.  How?  Well, in the old days, people used to EARN money and they would sometimes use it to buy bonds and the money would go out of circulation and be tied up in a T-Bill for 10 years – lowering the free money supply.  The Government, of course, would spend the money but it's money they were going to spend anyway, whether you lent it to them or not – the money you put into the bond just helped to balance the budget.

Now that's out the window and the Government spends and you spend and Corporations spend and no one seems to worry about paying debt back and, since no one is really buying US bonds, the Fed simply prints money and uses that new money to buy bonds.   That lowers the amounts of bonds in circulation, keeping their "value" up – which translates into low yields.  Since the Fed buys bonds effectively from people who are rolling it over, the money goes into circulation, replacing the bonds and, since investors are not too keen on bonds – where does the money go?  Stocks!  See how easy economics is?  

Some goes to Housing, some goes to Commodities and some actually goes into the Economy but mostly money is looking for a return and we're sure not getting it in the banks or from bonds, so stocks win!  The money going into the economy also causes inflation, of…
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No Top Tuesday – Is there Ever and End to this Rally?

Up and up we go.

It's truly amazing that the Nasdaq has actually doubled off the March lows and it only fell 30% in March so we're up almost 50% from our pre-pandemic levels and was Trump really that bad for the economy that his policies were holding the market back from a 50% gain at the time?  

Much as I disliked Trump and his policies, no, they were not responsible for our "poor" market performance.  The Nasdaq was around 5,000 when he took office in 2017 – back to where it had peaked out in early 2000 – and Trump's tax cuts and low rates and weak Dollar rammed us up 140% higher by the time he left office to just under 12,000.  We were back to 7,000 last March on virus fears and now it turns out the virus must have been great for the economy as we're up to 14,000 – with Biden adding 2,000 more points (16.66%) in just two months of presidenting.  

Will we ever see a top to this market or will it just keep going and going?  CNBC had Tom Lee on yesterday and he predicts a "face-ripper rally" in April – as if 8% per month is a slow start to the year.  "I think there’s a level of surprise coming in April because we already had a strong finish beginning Wednesday of last week. It’s really three days of strong rallies and history shows this is really building up to be what could be a, potentially, S&P 4,200 before the end of the month,” Lee said.

Well, 4,200 is only up 5% for the month, so it's actually slowing and not ripping any faces that I can see but it makes a good headline and sound-bytes are what matter, right?  Meanwhile, the entire stock market rally is nothing compared to the explosion in Crypto







Monday Market Momentum – Still Heading Higher?

ImageUp and up we go.

Of course Europe is closed on Easter Monday so it's a very low-volume affair and we'll have to see what sticks this week. We have a few early earnings reports but nothing Earth-shaking.  Earnings reports start in earnest next Wednesday, with JPM, GS (and that's all we need to know) along with Wells Fargo, Progressive, First Republic and Bed Bath and Beyond – a very good mix to start earnings season off with.  

Until then, we continue to tread water in thin air (there's a mixed metaphor!) and we're thin on Fed speech this week though Powell speaks on Thursday.  This morning we have PMI, ISM and Factory Orders, JOLTS tomorrow, Housing, Trade and Fed Minutes Wednesday, along with Consumer Credit, nothing Thursday and PPI and Inventories on Friday.  Kind of boring, actually.