Tuesday Turmoil – China Sells Off, Weather Gets Cold

China's stock benchmark falls from 13-year highThe weather isn't the only thing turning cold.

Chinese stocks fell the most in three weeks, led by consumer shares and commodity producers, amid concern valuations for the most popular stocks were stretched and as metal prices slumped.  The CSI 300 Index dropped as much 1.5% before paring losses to 1% at the close. Gauges tracking energy, consumer staples and materials producers slumped more than 2%.

Some 39 Chinese companies both domestically and offshore defaulted on nearly $30 billion of bonds in 2020, pushing the total value 14% above 2019’s.  Defaults by Chinese companies are likely to top last year’s record as tighter monetary policy squeezes borrowers, according to China Merchants Securities Co.

“The central bank will implement more prudent monetary policies this year,” said Yuze Li, a credit analyst at China Merchants Securities. “More companies may face refinancing pressure. As the maturities jump, the default amounts will climb by an estimated 10%-30% from the previous year,” he said, referring to both onshore and offshore defaults.

In the dollar-bond market, the financial sector accounted for about 43% of total defaults, followed by technology and energy. ?Five state-linked companies defaulted for the first time in the onshore bond market, the most since 2016.

 

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Monday Market Movement – Down for a Change

Wheeee!  

As I noted on Friday, it doesn't take much to mkes a lot of money on the Futures shorts and Friday's plays are all paying off in spades this morning and we only just crossed back under the 13,000 line on the Nasdaq (/NQ), which pays us $20 per point, per contract – on the way down from here.  By keeping a tight stop (13,005) over the line, we limit the loss to $100 per contract but we have no such limit on a potential win and the Nasdaq is more than 1,000 points over-valued at 13,000 – so it doesn't take much of a push to get us lower.  

Of course, we don't want to be greedy and we lock in gains of $500 or $1,000 per contract by putting tight stops on 1/2 and, if those trigger, then tight stops on the other half so we don't lose more than 25% of our total gains.  Then we follow the 5% Rule™ to see if we have a weak or strong bounce and that tells us whether we should get out or double back down for the additional ride.  That's how we played the Nasdaq, which dropped to 12,940 on Friday before giving us a ride back to 13,120 and sticking with that has put us in a fantastic position on that index as well.

According to our fabulous 5% Rule™, the Nasdaq topped out at 13,060 and 12,900 is the 7.5% line up from 12,000 and 13,200, of course would be the 10% line and a rejection of that 1,200-point run would be 240-points but we'll call it 250 and that make 12,950 the weak retrace line.  If that holds, we should be worried but, if it fails, the next support is way down at 12,700 so that's the next shorting zone we can play.

Since we expect a bounce at 12,950 however, it's a good place to take 1/2 our profits off the table and, if we head higher, we set a stop on the rest at no less than 75% of our maximum gain, which will be $1,000 per contract.  Then we calculate a
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Non-Farm Friday – 4,000 Dead People Don’t Need Jobs Anyway

If this were a stock chart, what would you predict?

The only thing outperforming BitCoin and Tesla in 2020 is the number of people dying from the virus every day in the US and, just like the stock market, we are setting new records almost every day.  Over 4,000 Americans died yesterday but we're too distracted by the revolution to keep the asshole in power who got us into this mess to pay any attention to the actual mess.  

Certainly Donald Trump isn't paying any attention to the virus or the inept roll-out of the vaccine or the complete failure to provide PPE equipment to protect our people.  None of this has been on his agenda and President Thanos will do whatever it takes to stop Joe "Iron Man" Biden from doing something about it.  365,000 people have died in the US so far from Covid-19 (yes, it's been a full year as it's now 21) yet, if 4,000 of them died yesterday, that's a pace of 365,000 in 91 days.  So, at this pace – which is accelerating rapidly – as many people will die in the next 3 months as have died in the last 9 months.  

So far, we have vaccinated 5M people in the first month and that's a bit less than 2% of the population so only about 50 months and we'll get to everyone.  Since the vaccine doesn't stop people from spreading the disease – it will have very little effect on slowing the spread until about 1/3 of us are vaccinated which, at the current pace, will be mid-2022.  Hopefully Joe Biden will do better than Donald Trump and, thankfully, Mitch McConnell will no longer have the power to stop him.

The market, meanwhile, does not stop going higher – no matter what happens.  This is fantastic for those of us who own stocks but not very good for the rest of humanity, who are seeing the largest wealth gap in modern history grow away from them day by day.  

We're playing the S&P Futures (/ES) short at the 3,800 line – simply because it's
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Thursday Thrills – Democracy in Danger, Market at All-Time Highs

Trump supporters storm Capitol, clash with police; 1 dead | Deccan HeraldWho needs law and order?

Not the stock market.  Despite all the turmoil, the market is still chugging along at the highs.  Of course, the Democrats took control of the Senate yesterday and Mike Pence didn't violate the constitution and certified the election so it looks like our long, National Nightmare will finally come to a close a week from next Wednesday (Jan 20th) but, unfortunately, like many nightmares – the worst part comes just before you wake up.

Did Trump incite the riot that led to an assault on Congress and our Capitol?  We report, you decide:

All of us here today do not want to see our election victory stolen by emboldened radical left Democrats, which is what they’re doing and stolen by the fake news media. That’s what they’ve done and what they’re doing. We will never give up. We will never concede, it doesn’t happen. You don’t concede when there’s theft involved.

Crowd: (07:11)  Fight for Trump! Fight for Trump! Fight for Trump!

We want to go back, and we want to get this right because we’re going to have somebody in there that should not be in there and our country will be destroyed, and we’re not going to stand for that.

You know what the world says about us now? They said we don’t have free and fair elections and you know what else? We don’t have a free and fair press.

Our media is not free. It’s not fair. It suppresses thought. It suppresses speech, and it’s become the enemy of the people. It’s become the enemy of the people. 

You’ll never take back our country with weakness. You have to show strength, and you


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Wednesday Rebound – Russell Jumps 3% Pre-Market

ImageIs this Democratic Rotation?

With the Democrats looking to take both Senate seats (and control of the Senate) away from the Republicans, the small-cap Russell 2000 Index has gone crazy this morning, jumping 3% pre-market on the assumption that the first thing Joe Biden will want to do is make America great again for small businesses and the middle class.  The Nasdaq, on the other hand, has become a haven for Oligopolists and there may be some trust-busting coming their way as now Tech is becomming "too big to fail".  

”The market is pulling in implications of what a Democrat win would mean for the economic recovery,” said Peter Rosenstreich, head of market strategy at Swissquote Bank. “Expected increase in fiscal stimulus and infrastructure spending would bode well for cyclical or growth stocks. Tech stocks may not benefit as much, and that may have something to do with their stretched valuations.”

As we know from our fabulous 5% Rule™, 3% is too much for an index to move in a session so we should expect at least a 0.5% retrace (10 points) back from the 2,040 line on /RTY (Russell Futures) back to 2,030 and, if that fails, another 10 points to 2,020 will be the proper test so see if we're going to hold the bullish uptrend.  

Meanwhile, speaking of Oiligarchs, 53 people were arrested in Hong Kong this morning for the crime of "subverting state power" during the pro-democracy sessions last summer.  In a blatant display of Fascist refusal to recognize the Democratic process, the majority party refused to allow a newly elected official to be sworn in – promting a walk-out by the minority party in protest.  

Oh, wait a minute, that happened in Pennsylvania, not China.  China hasn't gone that far off the rails yet…  

Republican Sen. Jake Corman, the top-ranking senator, said Monday he wouldn’t permit Mr. Brewster to be sworn in because of Ms. Ziccarelli’s pending lawsuit in federal court. The suit alleges that


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30,000 Tuesday – Is this the New Normal?

We'll be testing Dow 30,000 again today.

After yesterday's wild ride, dropping 900 points and then getting 300 of them back into the close – traders are somewhat jittery this morning and, as I mentioned yesterday, we're about to get early earnings reports on Thursday and it will not be good if they disappoint.  

I have pointed out on serveral occasions that the earnings don't justify these valuations so we'll be watching the Dow components very closely to see if they can justify their 29.73x p/e ratio, which is up 39% from an uninfected 21.35x one year ago.  That's nothing compared to the 39.45x the Nasdaq is trading at (27.55 last year) or the 40.40x the S&P is now at (25.53 last year). 

Let's assume, for a moment, that the virus is a negative or, in the very least, not a positive event.  Corporate Profits are lower than they were last year so what is the new valuation based on if not stimulus and the pace of stimulus last year was $3.3Tn direct from the Government and another $2.8Tn from the Fed – pretty much $500Bn a month to buy us that 40% increase in valuations.

Perhaps this will be the new normal and our Government will just keep pumping $500Bn/month into the economy but, even then, will earnings ever actually catch up or is it always going to be speculation that things will improve – one day?  Corporate profits were $2.3Tn in Q4 of 2019 and Q2 of 2020 came in at $1.8Tn, which were down 21.7%.  Q3, not on the chart, was worse, at $1.6Tn but estimates are we should "bounce back" in Q4.  That's already baked in – what if the market disappoints?  

And, of course, even bouncing back only gets us back to about $2Tn, still around 15% below last year yet we're left paying 40% more for the same companies.  Will it never correct?  That's a pretty rough premise to hang your investing hat on, isn't it?  

China has a message for companies expecting another year of stimulus to keep the lights on – "Toughen up or Prepare to Fail".  After letting inefficient firms survive for years, Beijing is now allowing them to fail. Bond defaults rose to a…
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Marco Island Monday

See the source imageGreetings from Marco Island.

I'm still on vacation with the family, heading home tomorrow afternoon but I'll do my best to keep up with the market as we start the new year.  It's only the other side of the state from where I live so we get sunsets at the beach instead of sunrises but it's just nice to be anywhere else for a few days as we approach a full year in quarantine.

 

 

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Happy New Year from Philstockworld!

Its Always Something GIFs - Get the best GIF on GIPHYThis was a LONG year.

I was in Thailand this time last year, working on a project with the Thai Government to bring medicinal cannabis to the country with Hemp Boca and New Age – two of our PSW Investments partners.  As with most things in 2020, that project is now on hold but it seems like a different world where I went to an airport and got on a plane and walked around a crowded terminal without a mask on, etc.  

I'm 57 years old and there's been no point in my lifetime where the world has changed so drastically.  World War I was the "war to end all wars" and then there was the 1918 Pandemic and then the Great Depression and then World War II (since the "war to end all wars" didn't, they decided just to start numbering them) and then we had a nuclear arms race then a global recession in the 70s and then the financial system melted down and now this – it's always something, isn't it?  

My Grandpa Max was born in 1903 and died in 1999 – having caught most of the action and it always gave me the perspective that "this too shall pass" though, while you are in the thick of things – it sure doesn't seem so, does it?  

We started this year optimistically with "2020 Vision – Looking at the Year Ahead in the Markets" and we called for a long on Oil (/CL) at $61 and a long on Natural Gas (/NG) at $2.16 and Natural Gas topped out at $3.40 in November but Oil hit $65 in January but then collapsed to $10 in April and is only back to $48 now.

 

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Why Worry Wednesday?

Move along folks, nothing to see here.

The new, more contageous strain of corona is in the US and McConnel killed the additional stimulus but why should that bother the markets?  The good news is, with most of the country back on lockdown, we "only" had 201,106 new cases yesterday and "only" 3,628 Americans died yesterday – which was 9% better than Monday so YAY!!!, I guess….

Here's a fun fact, there are only 924,107 "staffed" hospital beds in the US – ones where the patient can be monitored.  Only 20% of them have the potential to have ventilators – even after US having 9 months to get ready.  124,686 Americans were hospitalized YESTERDAY – most of them cycle out within a day or two but every time one lingers on, it diminishes our total capacity to care for the rest.  

The US ranks 32nd in hospital beds per capita, right behind Turkey but better than Columbia so YAY!!! again, I guess.  Remember what China did when Covid started – they built two giant hospitals just for Covid cases on just a few weeks and that country only had 90,000 cases – TOTAL.  The US will ring in the New Year with 20M cases and not one wing has been added to any hospital – no Government effort at all has been made to make sure we are prepared, leaving us no choice but to go back on lockdown.

It's one thing for the Government to say they don't want to have lockdowns because they hurt the economy but when the same Government does nothing to make it possible to NOT have lockdowns – what do they think is going to happen?  You can't govern this ineptly by accident – it has to be the plan….

California, Ohio, North Carolina and Puerto Rico now have "stay at home" orders in place – no going out unless it's absolutely necessary as their hosptial systems can't take any more patients.  PA, MA, DE, WS, KY and NM have all issued stay at home advisorys – trying to not make it an order if they don't have to.

What could possibly be better for the stock market, right?  Maybe we'll get lucky
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Toppy Tuesday – More Free Money Helps Us Re-Test the Highs

Here we are again!

Dow 30,404, S&P 3,735, Nasdaq 12,840, NYSE 14,405 and Russell 1,996.  Not only did the new $900,000,000,000 stimulus bill get signed but IMMEDIATELY after that, President Trump teamed up wiith the House Democrats to pass an additional $1,400 per citizen (of Georgia) handout to help us pay those Christmas Credit card bills and decide who to vote for in Thursday's Senate Run-Offs.

One of my big concerns is there would be selling ahead of the end of the year but clearly that hasn't happened, possibly because most people's gains are too short-term to have consequences for timing long-term capital gains, which may increase significantly next year under Biden (especially if the Democrats win the Senate).  That hasn't happened so there's no significant pressure to sell and the volume of trading is virtually none so it takes very little to manipulate the market higher and give 2020 a fantastic close – no matter what's actually wrong with the economy:

Date Open High Low Close* Adj Close** Volume
Dec 28, 2020 371.74 372.59 371.07 372.17 372.17 38,851,900


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