Terrific Tuesday – Apple (AAPL) Tests $160 Again

The bull is back! 

Well, it never left but it paused for a day and that's something, right?  As is often the case when the markets need a lift, Apple (AAPL) is getting a boost and, since it's in the Dow, the $10 run this month has added 85 of the Dow's 1,000 points but, in the S&P 500, AAPL is a whopping 4% of the S&P 500's weight so the 6.66% run from $150 to $160 adds 0.25% to the S&P, which is up 100 points (4%) over that time.  In the Nasdaq, fuggedaboutit, as AAPL is closing in on 15% of the Nasdaq's total weight so adding 1% to the index all by itself from that run while the entire index is up 4% so 25% of the move comes from AAPL and probably another 25% from AAPL suppliers!  

Boosting some of the key components in an index through upgrades, M&A rumors or straight-up buying of the stocks is a great way to mask selling by Fund Managers and Banksters when they don't want to scare off the Retail Investors while they move to CASH!!! (have I mentioned how much I love CASH!!! lately?).  Yesterday, for example, the Nasdaq finished up but 1,514 stocks declined while only 1,370 advanced in the index.  A falling Advance/Decline Line is one of the things we watch for if there's going to be a correction, so we'll be keeping an eye on it during earnings but nothing to worry about… yet.

Meanwhile, it's earnings season and yesterday we got a beat from Schwab (SCHW) and SONC (SONC) although the latter blamed the hurricanes for any shortfalls.  KMG (KMG) and Netflix (NFLX) missed but Netflix was immediately forgiven by rabid fans, who are happily paying the 10% rate hike which will, hopefully, compensate for their profligate spending.  NFLX did add 4.5M new subscribers and, at $13/month, that's $702M/yr in new revenues added in just one quarter – not bad!  Unfortunately, they have also increased content spending by $1Bn/yr ($8Bn now) – so we'll see how things go for them but the bottom line is they burned $465M in cash last Q – not good.  

None of that stops the company from commanding a price…
continue reading

Black Monday 30th Anniversary – Those Who Forget History…

It was 30 years ago today.

Well not today, it was the 19th but that's the closest Monday.  Anyway, it was a Monday (a day like any other day) when the Dow fell 22.6% in a single day.  That was only 508 points at the time (what inflation?) and it dropped to from 2,246 to 1,738.  That happened pretty close to the anniversary of the original Black Monday of October 28th, 1929, which kicked off the great market crash and the Great Depression.

 

 

IN PROGRESS

 

 

 

 

 

 

 

 

Fabulous Friday – Markets at (yawn) All-Time Highs

Another day, another high.

We may be too bearish into the weekend now so we'll have to play an upside hedge (in addition to RSX, which has also popped since our pick) and we'll look for something during today's Live Member Chat Room.  Today's run-up may be nothing but we're breaking over technical levels that certainly LOOK bullish enough – especially on the Russell, where we've been shorting

This morning's rally is based on Chinese Import Data, which is up 19% from last year, which sounds very impressive until you realize that the Dollar was 10% higher vs the Renimbi last year, so half of that growth is currency-related – assuming the data is accurate in the first place – which is always a question with Chinese data.

Also, think of how many parts had to be imported to be turned into new IPhones last quarter – that too bumps up the import numbers.  It's not the Chinese consumers that are buying more stuff, it's the Apple assemblers.  China is also building things with Iron Ore Imports up 10.5% (more in-line with the actual growth) and Iron Ore prices have jumped up 10.5% (what inflation) in September alone, which is good for BHP Billiton (BPH), Rio Tinto (RIO)  and Vale SA (VALE) and VALE makes a nice, bullish trade as it's still under $10/share with almost $1/share in earnings for a p/e of about 10.  As a bullish economic trade we can:

  • Sell 10 VALE 2019 $10 puts for $1.80 ($1,800) 
  • Buy 15 VALE 2019 $7 calls for $3.20 ($4,800) 
  • Sell 15 VALE 2019 $12 calls for 0.85 ($1,275)

That's net $1,725 on the $7,500 spread so the upside potential is $5,775 (334%) if VALE is up 20% by Jan, 2019.  The downside risk is owning 1,000 shares of VALE at $10 plus the potential loss of $1,725 so net $11.75 makes this an aggressive play but anything over $10 means we do not get assigned the short puts and we're already $4,500 in the money to start the trade – that's fun!  

It's a sideways play on China and we may have to consider China's ETF (FXI) for one of our longs though China Mobile (CHL) is…
continue reading

Thursday Follies – Post Fed Depression

Now what?

What can we do now to boost the markets.  We got the Fed minutes yesterday afternoon and there were no new revelations there to justify another 18 consecutive days of new highs.  Sure it's being spun that way but that's the same way these depraved Financial Networks spin every rally – at the behest of their mainly-broker sponsors.

Not that the financial press is any better – even as an independent who makes his money selling subscriptions, rather than ads, I still find that we get far less subscribers when we are cautious or negative on the market than positive so, even if you think the Networks are not being specifically paid to mislead you – you can be sure they are doing it for the ratings!  

The closer you get to a bubble top, the harder it is to get fresh money off the sidelines and the harder the market cheerleaders have to cheer to get you to put your money into the positions the sponsors are trying to wriggle out of.  Meanwhile, the sponsors play their own games – sending their analysts out to upgrade key stocks that boost the sectors they are trying to unwind.  As we pointed out yesterday – that's why you see all these upgrades on Tesla – the same week Musk is accused of fraudulent forecasting.  That's NOT going away – but their profits are! 

Since we first tested S&P 2,500 in July, I have urged caution at these levels and now we're at 2,550 and it doesn't make me feel better.  Though it's the opposite, it reminds me of what Jim Cramer said to his viewers on October 31st, 2007 (5:20 in the video):

 

"You should be buying things and accept that they're over-valued but accept that they are going to keep going higher – I know that sounds irresponsible – but that's how you're going to make the money. " – Cramer, 10/31/2007 – Dow 13,930 

"That's why the market just won't quit, no matter how poorly actual companies are doing." – Cramer, 2/1/2008 – Dow 12,743

"Very simply, I believe that it's time to BUYBUYBUY." –


continue reading

Which Way Wednesday – Are the Markets Now Too Big to Fail?

What a long, strange trip it's been.  

This morning the Nikkei is back to its 20-year high of 20,900 but still far shy of the all-time high of 39,000 – hit way back in 1989.  We'll forget ancient history and focus on the current move, which is now up 5,000 points since the summer of 2016 – just barely over a year ago.  There's nothing too strange about that, the other Global markets have similar gains and Japan's Corporate Profits are up 23% over the same period – so 2/3 of the move may even be justified.  

Japan, along with most of the World's markets, has been quite the under-performer for the past decade.  Back in May, I was interviewed on China Global Television and we were discussing Brazil's scandals and we decided we liked Brazil's ETF (EWZ) for a bullish play, saying:

So I like EWZ down here ($32.75) and we can take advantage of this dip with the following:

  • Sell 5 EWZ 2019 $25 puts for $2 ($1,000) 
  • Buy 10 EWZ 2019 $25 calls for $11.50 ($11,500) 
  • Sell 10 EWZ 2019 $35 calls for $5.50 ($5,500) 

That's net $5,000 on the $10,000 spread that's over $7,000 in the money to start.  The upside potential is $5,000 which would be a 100% return on your money and your worst-case downside would be owning 500 shares of EWZ for net $30/share ($15,000).   The ordinary margin on the short puts is just $780 so it's a very margin-efficient play as well.


continue reading

Tricky Tuesday – Markets Flat Ahead of the Fed

What an exciting rally!

As you can see from our Big Chart, our indexes are up about 5% in the past 6 weeks and, so far, no sign of slowing down despite declining volumes.  The Russell (small caps) is our leader, with a 10% move in 6 weeks and only the one little pullback in early Sept – before a solid 7.5% move straight up since.  

As I noted on Thursday, we pressed our Russell (IWM) short positions using the Ultra-Short ETF (TZA) with Nov $12 calls, which were $1.35 at the time and are now $1.45.  Per our fabulous 5% Rule™, we expect a 2% (weak) retrace of the 10% run from 1,368 to 1,512, which was 54 points so 11-points back we'll call the 1,500 line and a stronger retrace of 4% would take us back to 1,490 (rounding again).  

We weren't too far off yesterday, bottoming out at 1,503 but we're pretty confident we'll hit our goal as the other indexes are at their 5% lines and not looking like they won't pull back a bit (1%) as well.  Not yet though, because tomorrow we get the Fed Minutes, which will tell us nothing new but will still be a good excuse to rally back a bit.  Also, the Dollar has dropped 1% since Friday and that is supportive of the indexes – as well as commodities and oil above $50 boosts the Energy Sector, which boosts the S&P, etc…

Anoter way to manipulate the markets is to throw out a bunch of upgrades like BAC upgrading Apple (AAPL) to $180.  AAPL is a major market-mover and BAC timed their report to come out on a very slow day, maximizing the impact of their report.  The reasoning is as bogus as the timing as BAC apparently JUST found out that AAPL will be able to repatriate some of it's cash from overseas at a low tax rate.  As I noted in our Live Member Chat Room this morning:

AAPL/Maya – If that isn't baked in by now, people are idiots.  Also, it's not true that AAPL somehow can't access their cash – obviously,


continue reading

Meaningless Monday Market Movement – Happy Columbus Day

In fourteen hundred and ninety two

Columbus sailed the ocean blue – and got totally lost, missed India by 6,000 miles but called the Native American Islanders Indians anyway, slaughtered them and stole their gold and, lacking any real wealth to go back to Spain with, instituted a slave trade that lasted 250 years and ruined the lives of tens millions of people.  Yay!  

I got called into the Principal's office when my daughter gave a report like that in 7th grade – just 5 year ago.  Suddenly, it's in vogue to question our "heritage" and the legends of the founders and that's a good thing.  You want Russians to question Marx and Lennin and you want the Chinese to question Mao so why shouldn't our children question Columbus and Jefferson?  Either you want to raise critical thinkers or you don't.

There aren't many critical thinkers playing the markets these days.  Over the weekend, Trump and North Korea continued their Twitter War after Trump's "calm before the storm" comments on Friday and Saturday afternoon, the President of the United States tweeted "Presidents and their administrations have been talking to North Korea for 25 years, agreements made and massive amounts of money paid…hasn't worked, agreements violated before the ink was dry, makings fools of U.S. negotiators. Sorry, but only one thing will work!" to which Kim Jong Un said that proved it was necessary to protect themselves against the “nuclear threats of the U.S. imperialists.” Kim Jong-un also said that North Korea’s nuclear weapons are a “powerful deterrent firmly safeguarding the peace and security in the Korean peninsula and Northeast Asia.” 

Senator Bob Corker, the Republican chairman of the Senate Foreign Relations Committee, charged in an interview on Sunday that President Trump was treating his office like “a reality show,” with reckless threats toward other countries that could set the nation “on the path to World War III.”  Other key quotes from that interview were:

  • "I know for a fact that every single day at the White House, it's a situation of trying to contain him."


continue reading

Non-Farm Friday – The Calm Before the Storm

Image result for trump calm before the storm cartoon"You guys know what this represents? Maybe it's the calm before the storm." 

That's the word from our President last night as he prepared for a dinner meeting with his military commanders.  The press asked him WTF he was talking about – as the President has many enemies he'd like to attack from Kim Jong Un to NBC News - who knows which way the drones are going to fly and Trump, ever the consumate game-show host, left us with a cliffhanger saying "You'll find out."  

Certainly Trump needs a distraction after such a terrible week for his Presidency and he's been working overtime to keep the haters spinning in circles, rolling back environmental regulations, arguing for gerrymandering in the courts, taking away birth control, taking away abortion (the GOP needs more poor babies to vote for them), demanding Congress violate the first amendment while defending the second in the wake of tragedy…  Hell, I bet you don't even know the US refused to join the rest of the civilized World in condemning the DEATH PENALTY for LGBT people in other counries

That's right, the US actually voted AGAINST a UN resolution that condemned the death penalty as a punishment for being gay.  This is not fake news, this really happend – in America – in 2017.  The fact is that we live in a world where even today gay people are being arrested, tortured and killed because of their sexual orientation. And the United States didn't just let an opportunity to condemn those atrocities pass by - it did much worse. It took a stand against that condemnation.

This latest vote came as a stark reminder that under the current administration, the United States hasn't just given up its commitment to advancing human rights. It has, instead, changed sides in that struggle.  The resolution urged countries that have still not abolished the Death Penalty (most countries have) to make sure it is not imposed as punishment for "apostasy, blasphemy, adultery and consensual same-sex relations."  That's right, blasphemy too – like speaking out against the Trumpster!  Maybe that's why you haven't heard about this from your regular news outlets…

The fact that the United States, the birthplace of the modern human rights movement, has opposed a measure
continue reading

Thursday Thrust – Markets Going Higher Just Because

The markets just don't go down anymore.  

I said the markets were broken the other day and this BAC chart spells that out.  We haven't had a sustained move down since last year as the market keeps grinding higher but it's all based on what investors HOPE is going to happen – not what is actually happening.  The "Hard Data" has, in fact, been crashing all year and the bounce we are currently celebrating is mainly due to post-hurricane buying – something we knew was going to happen but is still getting the markets very excited and now analyst/cheerleaders are extrapolating this one-time boost in buying ad finitum to entice more money off the sidelines and into the markets.  

Even Warren Buffett is getting into the act, virtually guaranteeing the tax cuts will pass (which should boost bottom-line earnings – even though no actual improvements in sales or operations will have occured) and going so far as to state that he isn't even selling his winning positions because he will save so much money next year on lower tax rates.  Of course Buffett is talking his massive book, which holds hundreds of Billions of Dollars worth of stocks at record highs.  So are all the other fund managers they are trotting out on TV – telling you how great the market is at this price.  

We are VERY reluctantly long still, but not so much.  Since our last Portfolio Review in mid-September, our Long-Term Portfolio has gained $48,000 (2.9%) while our hedges in the Short-Term Portfolio have dropped $30,000 so a net gain of $18,000 on our paired portfolios while we're putting in fresh record highs. 

Just this morning, we discussed, for the first time, buying NAKED LONG TZA Nov $12 calls, which are $1.35 with (TZA) at $13.15 so they have just 0.20 in premium and, if the Russell (now 1,515) does drop 2.5% to 1,477, the ultra-short ETF would gain 7.5% to $14.13 and the calls would be worth $2.13 – up 57% on a 2.5% drop in the Nasdaq so 20:1 leverage on the downside.  

I know I put up a lot of doom and gloom warnings in the morning Reports but that's
continue reading

What to Ignore Wednesday – How About $359Bn of Repo Failures?

$359,000,000,000.  

Even these days, that seems like a big number, right? It's not on the chart but you get the idea, the last time repo failure leaped up like this was ahead of the great crash of 2008 but why worry?  Both mini-spikes last year led to big market pullbacks but Trump's election saved us and now we're just happily ignorning over $1 TRILLION in failures in the past 3 weeks alone.  

A “ repo fail” is pretty simple and straightforward; when the obligation of any seller to deliver agreed upon securities remains open following the close of business on the agreed date of the transaction.  These are, after all, repurchase agreements, which means exactly what the name implies; I buy bonds from you today and agree to sell them back tomorrow (or whenever).  If I don’t sell them back to you tomorrow, we have a fail.  The reason for them relates to what repurchase agreements actually are; collateralized short-term loans, mostly overnight. They are structured as repurchases for historical reasons that since the 1980’s have been superseded by this reality.

In 2008, this relationship was very easily established; T-bill rates in particular would trade in equivalent yield far less than they otherwise “should” given money substitutes (such as the IOER). Bill rates fell sharply in the wake of Lehman’s insolvency, and repo fails exploded into what is now the textbook (well, one not written by an Economist, anyway) case.  Thus, whenever we find an outbreak of fails it is for various reasons a tightening of collateral conditions. Some prove innocuous; most do not, especially any that would linger.

Something is hindering the flow of collateral – what it is remains to be determined…

Image result for equifax hackI know there's a lot to keep track of but let's remember that Equifax was hacked and, if you are a US citizen who has ever applied for credit, then ALL of your personal information is out there.  Well, not ALL – just the stuff they ask you for on a loan application.  This morning we just head from Yahoo that 3 BILLION customer records were hacked at that company and, of course, there's the Wells Fargo nonsense – which shows you what
continue reading