Author Archives: Jim Kenney
Author Archives: Jim Kenney
OPTION PROFESSOR APRIL 25, 2020 OPINION & OBSERVATIONS
OK…We had our Crash & Our Fed Injection Obscuring Real Values & our TINA (there is no alternative)…..for those of you unfamiliar with the racetrack….a SUPERFECTA Winner is when all 4 horses you pick in order come in…THIS WEEK..we have 4 very important events occurring starting with the S&P 500….moving thru toward EARNINGS….ending with Q1 results from Buffett’s BRK.A….the cherry on top are 3 Major Central Banks (Japan-Fed-Eurozone) announce monetary policy. LAST WEEK..we had UNEMPLOYMENT jumped to 27 MILLION unemployed. We also saw SERVICES PMI’s at 27!…anything under 50 is CONTRACTION… common words are now DELINQUENCIES & FORBEARANCE…4 MAJOR banks have 18+BILLION set aside for loan LOSSES….some Companies have skipped LOC’s and gone right to issuing JUNK BONDS which have sold like hotcakes we assume because managers need to hit their 5%-7% Targets plus the mantra circulating that a 2nd half REBOUND & a Fed PUT is CERTAINTY. CEO’s posted Earnings this week/most suspended GUIDANCE-NO VISIBILITY. NOW…Looking FORWARD to the 4 EVENTS—#1 S&P 500 MOVING AVERAGES are a VERY Important Part of the work we do…..we are FOCUSED today on the 1 year/2 Year/3 Year numbers….we believe TIME & PRICE can smooth out aberrations and help IDENTIFY Trends….they are factual ALBEIT in a HISTORICAL perspective. We have a 20 Year Historical Chart (available to you via [email protected]) that show all 3 averages since 2000. Only during the DotCom Crash of 2001-02 & the Great Recession of 2008-09 did all 3 Averages CROSS & head lower. During 2016 & 20118 they were all BREACHED but NEVER Crossed…..ALSO in 2001 & 2008; it was 2-3 YEARS est. until they crossed back UP…in 2016 & 2018 it was only a couple of MONTHS before getting back ABOVE the averages and resuming the UPTREND. Where are we at RIGHT NOW?….the NUMBERS are about 2965 and 2870 and 2775. This THURSDAY is EOM for April…..our view is that IF S&P 500 can close above 2775 and stay ABOVE it in the months to come…then a case can be made that the FED FLOOD of liquidity WORKED AGAIN….if NOT and these MOVING AVERAGES INVERT to the downside then these sharp rallies will be no more than REVERSION rallies that roll over. OK..let’s go to #2…THE BIG FIVE EARNINGS-FB AMZN GOOG AAPL MSFT-ALL coming out this week for ONLY 3rd TIME in collective histories. The CONCENTRATION of 5 companies in the INDEX has ONE parallel in 2000’s when CSCO-GE-MSFT-XOM-INTC had slightly higher dominance (interesting to note XOM has essentially gone full circle & GE lost 90%). The Fab 5 have a market cap of $5.1 Trillion or about the value of all ex-US stocks & more than the bottom 350 stocks in S&P 500. What could KEEP YOU UP @ night? Well….is it impossible that AD Spending….CLOUD & Enterprise Software spending & 5G-I-phones-Services spending could be REDUCED? Could MARGINS be PINCHED & Costs RISE? If so; these Stocks are MIS-PRICED. These are GREAT companies with GREAT ideas They NEED CONSUMERS. In 2015 & 2018 the aftermath of these guys all announcing the same week was NOT so ROSY so CAVEAT EMPTOR. Other sectors announcing this week are Health Care–Ci HUM PFE ABBV ….Energy–XOM CVX PSX COP Comm.– T Charter, Comcast Restaurants YUM MCD SBUX ….Brands Kellogg’s PEP Colgate Addidas Kraft Heinz…Industrials HON BA IP CAT GE URI..Transports UPS…Tech TWTR TSLA QCOM…..#3….We believe this is the BIG ONE…..BRK.B which reports EARNINGS late this week & 13-D filings May 15th. What could we LEARN?….Well…earnings will tell us more about the $128 Billion they had in cash….did they spend it in March? On May 15 we will learn positioning as of March 31 which includes the CRASH in PRICES……and therein may be the TRUTH….We saw an interview with Charlie Munger which may reveal their thinking in that he essentially indicated we have just been thru a TYPHOON & it would be nice to come out the other side with a comfortable amount of LIQUIDITY. If CEO’s have no Confidence in EARNINGS VISIBILITY…..the the second part of P/E….the EARNINGS Part is hard to quantify…..which Means a CHEAP PRICE but you Don’t Know What VALUE you are getting…..that would mean a Heavy Emphasis on GAMBLING and that has NOT been their forte….Buffett’s got a lot of one liners like When it Rains Gold Bring a Bucket Not a Thimble….but the one we like is Be Greedy when Others are Fearful & Fearful When Others are Greedy…well A Reminder that he does NOT say Be GREEDY when Others are being STUPID! IF the Earnings & 13-D show Cash Remains HIGH… we’ll take it as plowing into stocks because PRICES CHEAP without P/E VALUATION is GAMBLING. The final event #4…is Central Bankers meet and will come out with plans for recovery…..let’s face it…it’s an open bar with monetary policy….Japan & Europe buy everything in sight and now the US is onboard with only stocks off the table…but since stocks are only one level lower than Junk Bonds in the capital structure we would not bet that they are off the table. The trick is set up a program with Treasury (Mnuchin will go for anything) to comply with legal restrictions and call it BAIL OUT UNDERACHIEVING TRADERS (BOUT)….McConnell says don’t bail out states/cities/counties….well either he’s found religion after BLOWING UP the National Debt & Fiscal DEFICITS or he’s playing a game of not being on board to save face with DONORS while knowing Full Well his state of KENTUCKY is fiscally upside down and can’t wait for all that FREE MONEY to fix their financial & pension shortfalls
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As we have said…the upper band of Level 3 RESISTANCE ball park is 2930 & 3030 (61.8% retrace & 200 day) which we tried to approach but the air got thin around 2880-2900. The high beta ETF’s on our radar VGT VCR MGK SMH & VYM all finished the weak strong & the tech ones are ABOVE their 200 day moving averages…..with the huge OUTPERFORM (since 2001)of the Nasdaq to the Dow….we see 2 distinct outcomes…..the rally is for real and we stay above 2775 SP at such time a rotation to undervalued sectors begins or this iss a Reversion Fugazi rally (like 3000 to 3393 SP) and we roll over from Level 3 resistance. Well if you believe scenario 2…you would fade AMZN/AAPL/FB/GOOG/QQQ into whatever big rally into earnings this week or you might look for sectors still TRADING SUBSTANTIALLY UNDER their 200 day moving averages like Financials (WFC C BAC JPM 25-42% under 200 day M/A’s)….Energy (XOM CVX COP SLB PSX all about 25-50% under M/A’s) Industrials (VIS 20% under) Small Caps (IWM almost 20% under) Materials (VAW 14% under) Retail (XRT 17% under) Value (VTV 22% under) Homebuilders (ITB 20% under) are some EXAMPLES. For those NOT on the bandwagon that a 2nd Half recovery is a certainty…this rally toward 3000 SP is a chance to adjust asset allocations. Stocks on the radar this week TCBI ZM INO INTC BYNF PTON IBB Canadian Banks ADC AVGO BAX OXY GDX DIS VIAC NFLX TDOC PLUS in the Big Data Robotics IoT AI & Precison Medicine. Also; HSIC XRAY GILD KMB CMG EEM EWZ ULTA & Boston Scientific to boot.
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The Big 3 Central bankers meet this week and if I had one warning it would be that if the Stock Market rally has legs….the Fed in May could temper the printing presses and that is NOT what the yields (Tsunami of DEBT from Govt-Corporations-Public-Soon States) are discounting HOWEVER if they elect to go to YCC (Yield Curve Control) then rates could dive lower and maybe under extremes break the buck in some funds (remember oil last week). Economic numbers (Unemployment-PMI’s-GDP’s- Balance Sheet Damage) are being dismissed as this MOTTO of we are CERTAIN to get a rebound in the 2nd Half could be dangerous IF the restart is low & the Virus return sin the fall. Who knows…we know we have 27 Million+ Unemployed and PMI & GDP numbers tanking…our President is a self proclaimed cheerleader all over the place on restarts & cures (disinfectant injections??)….We have never seen these kind of numbers before with delinquencies & forbearance the norm….Sharp Guys are raising Billions to buy DISTRESSED DEBT so be careful of JUNK & Sovereign JUNK & some commercial mortgages look like a dice roll only a FED hand out will cure….Also McConnell says to hell with the states…let them go bankrupt….reassuring to gray haired muni holders?? Some states like Colorado & Alabama can’t run up debt so it’s a moot point. For those of you who like extra shots of Sherry in your Lobster Bisque…maybe High Yield in OXY WPX & single asset/single borrower in high quality Hotels & Resort. So what are we focused on in the near term until we see CLARITY over TIME… Our focus is relatively short term & relative quality (VUSFX VFSUX VMBS)
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As we have said..the Dollar is the one eyed man in the valley of the blind…as the entire world is running up so much DEBT on top of DEBT with no GDP that who knows what this paper is worth? Volatility has left the building in FX this week as we are basically right around the 100 the price equilibrium of the last 3 months. What is the Yen & Euro doing..both of which have been on the ledge of their converging 50 day & 200 day moving averages? The Yen is 107.46 with the averages BOTH at about 108.32 so we would view a break OVER those levels as NEWSWORTHY while the Euro is priced @ 198.21 with averages around 109.50 & 110.50 so moves above those levels would get us to take notice…the commodity based currencies of Canada & Australia are holding their rebounds but all of this begs the question..What are the waiting for?…Central Banks meet this week & Economic Numbers are rolling out…our guess..that’s exactly what they are waiting to see.
What a difference a week makes after the historical negative pricing on the May expiring contract (minus 40 bucks!). We would not discount another rendezvous with price weakness ass June expires but -40 does sound like capitulation to us…..if DEMAND return which has been true before with excessive low prices then we still have a fair chance at a rebound by year end and a set up for better things in 2021….IF NOT bar the door Katie as defaults & bankruptcies will engulf the US Oil business. Trump says he’ll be helpful, Buffett took OXY stock in lieu of cash for $200 mill payment do & Carl Icahn said he thinks assets look good the risk reward looks OK…add it up and it seems to us as constructive behavior….but they could be wrong. The refineries could have pretty good margins so we focus on those cos.
Gold Silver Copper
Well we got our new highs on GDX (now you DO NOT want it under 30) but now Gold has now twice faded off 1800 and Bank of America is calling for $3,000 and the Gold Coins continue to command HUGE premiums over spot. There is so much room between the 30’s and the former highs near 70 that seeing if we can maintain above 32 and a break of 1800 BEFORE adding to core positions from lower levels seems prudent….in a bull market they say buy PULL BACKS…Silver as we said has 50-200 day moving average resistance in the area of 16-16.50….SILJ has rebounded but not above its 200 day M/A at about 10 so the jury remains out…Copper still meandering between 2.00 and 2.50 nad FCX cut spending & projects to shore up their balance sheet and prepare for making it thru to the other side of this thing. On our radar…GDX GDXJ FSAGX KL KGC NSTG AEM AUY SBSW AGT Pluss PAAS SIL SILJ NEM WPM SCCO and others.
Do you have questions???…email us @ option [email protected]
Well a big story is the meat plants & the jump in Beyond Meat stock (some say if you didn’t like fake meat before you won’t now and 130 area-Feb highs-could conclude a panic run into the stock of the last week and month-lots of short interest….dangerous game…only time will tell)…..Corn & Sugar got pressured during this oil fiasco as ethanol usage /supplies are out of whack or perceived to be…..Coffee has faded away a lot of recent gains ass deflation vibe still running around…for how long? As we said our gut feels that Soybeans could go 9-10-11 under the right circumstances (China-Weather?) but need moves about 8.80/9.30/10 to get that ball rolling and we’ve rolled the other way….Gut is not price evidence…so we wait…..
REMEMBER There is a substantial risk of loss in short term trading & option trading and it is not right for everyone , Please consult your brokerage firm, broker , advisor to determine your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only
April 18, 2020 Option Professor OPINION & OBSERVATIONS
OK everybody we all have seen this movie before do you need are review? Here you go….FIRST we get a market CRASH….usually based on way to much leverage (Dot Com-Real Estate-Corporations)…SECOND.. the FED comes to the “rescue” by printing money (money supply just jumped 15%+) and buying assets (they are so far outside of their boundaries it’s a joke) and driving interest rates to ZERO in money market funds (kill the saver). Now we get the THIRD..which is TINA-the acronym for “There Is No Alternative” Simply put…everybody is forced to buy RISK assets if they want to make any money. Even the FED knows they may have gone too far in the short term inflating asset prices as their DAILY QE was $75 Billion per day in March has now been reduced to $15 Billion per day. After the FED left interest rates at ZERO for a ridiculously long time after ’09 and caused asset prices (S&P 500) to jump about 88% in about 4 years (peak to trough) EVEN they have to know that the returning the S&P back toward the all time highs with 22 + Million UNEMPLOYED, no EARNINGS, negative GDP, soaring DEFICITS ect. has the potential to not end well if the rosy outlook about restarts, therapeutics & vaccines should hit a speed bump. On the S&P 500; we have breached the FIRST resistance zone (2640-38.2% retracement)…the SECOND resistance zone (2790-2850 50%-breakdown point) and are now moving toward the THIRD (2930-3030 areas-61.8% retrace & 200 day M/A). We have seen the biggest DIVERGENCE in the Dow & Nasdaq since Dot Com 2002 as people plow into “safe” tech & semiconductors with huge valuations We understand positioning & rebalancing of 60-40 portfolios that Quant guys like Kolanovic/JP Morgan & Tom Lee Fundstrat talk about on TV. We also believe much of that is being done…..after that volume is executed… Who’s going to buy above S&P 3000?….The BANKS made a KILLING (always PROFIT during panic selloffs) during Q1 when they exploded the BID/ASK spreads in both Stocks & Bonds (since the FED was talking to Larry Fink of Black Rock & others in March about their plans…why didn’t they announce to the PUBLIC DON’T Sell into this distressed market we are going to bail you out?) At any rate….they got plenty of MONEY & SET aside BILLIONS for loan LOSSES ect. How will we do into RESISTANCE zone number Three? We believe SUPPORT zones to be 2850..2700/2640…..2550-2450 & 2200-2000.
Questions or Speak With Us…… email us at [email protected]
We ended the week with a bang as the market zoomed on restart hopes & an anti viral therapeutic from Gilead (Remdesivir) which had positive but only anecdotal news. The Dow outpaced the Nasdaq by 2+X as the 18 yr highs on the divergence between the indexes closed. Could it be the huge stampede into tech & semis & virus stocks may be losing steam…maybe? We saw a downgrade on AAPL this week as questions about expensive I-phones & revenues out of their services business are being questioned. Also; AMZN ran up to 2460 (all time highs) which put the P/E ratio valuation at OVER 100X earnings & OVER 30% premium to its 200 day Moving Average (1867). We feel that 20-30% over is rich….40-60% overheated….70%-100+% is stupid. Virus beneficiaries like NFLX, ROKU, PTON, looked to have peaked and to a lesser extent ZM (10 million users to 200 million users since Jan WOW!) & TDOC…..many believe both these companies will have long runways but maybe price to valuations have gotten ahead of their skis. Dividend plays (COST & JNJ raised) continue to be centered in banks (JPM C WFC), pharma (MRK BMY PFE) & energy (XOM_CVX) & certain REITS (AMT, BIP, CCI,STOR). However; if we get a phase where cash flows are tight..suspend dividends? The high beta ETF’s on our radar VGT VCR SMH VYM MGK have all had a great run in the last month so between here and 3000–time for a trim? NEW ON OUR RADAR–There was podcast with a Mark Cuban interview where he discussed 3 areas he found interesting for the futurist…#1 AI (artificial intelligence) #2 Robotics #3 Precision Medicine….all have stocks that could participate in the sector…so AI…we’ll look toward the usual suspects (AAPL AMZN MSSFT IBM INTC NVDA CRM)…for Robotics (ZBRA CGNX KIGRY ABB PTC DASTY…for Precison Medicine (NSTG AGIO & ARKG). Additional interesting areas include Big Data, Block Chain, Cryptography & IoT (Internet of Things) which is broken down to consumer which is composed of devices and infrastructure that enhancing our daily lives & industrial which is composed of sensors, robots and equipment that improves efficiency & automates operations of industry such as electric grids & smart factories which may expand to return manufacturing to USA. Big data stocks (YEXT AYX SPLK ESTC TLND CLDR MDB)…Block Chain (IBM BABA)….Crypto (MSFT V NVDA PYPL CME AMD GS SQ) & IoT includes (INTC CSCO IBM QCOM ADI EMR NXPI ROK) & the ever present MSFT AMZN GOOG to a lesser degree. LOTS of RISK here…moderation always the key.
Normalcy starting to return to prices as a month ago EVERYTHING was trading at a huge DISCOUNT to NAV and the liquidity was “frozen” to the FED buying or saying they would buy and sending prices to a PREMIUM to NAV…both probably made no sense. Some closed end Muni funds were at a 24% Discount to NAV and are now flat while High Yield was at 24% but still at 8% Discount. The FED has got 9 Facilities to spread money around to a variety of problems…there will be NO SHORTAGE of problems for them to finance. the PPD/SBA programs are out of money (did you think people would pass on FREE money?)…but the sharps are already playing the ssystem with companies taking the money & then sending their people off to collect unemployment….and other SOLVENT businesses like MULTI BILLION $$$ HEDGE FUNDS are collecting the money & because they know where to go & how to fill out the forms….jumping ahead of the poor slobs who need the dough…disgusting…..how did this happen…well the real estate promoter, ex-hedge fund guy & his buddy from venture capital/private equity land (Trump-Mnuchin-Powell) did not REQUIRE proof of hardship as their buddies/donors would have a difficult time proving hardships from their homes in the Hamptons. At any rate…hard to believe that all these programs will work “flawlessly” but estimates of 2-12 Trillion supporting this bail out certainly has put downward pressure on short term rates and stabilized debt markets for now. This total collapse of revenues/cash flow/demand followed by the avalanche of DEBT be thrown on top reminds me of that scene in Good Fellas where the mob takes over the restaurant and runs up debts until you can’t borrow another penny & they torch it. You may hear more about YIELD CURVE CONTROL ahead if the FED decides to target a long term interest rate by buying/selling as many bonds as needed to hit that target rate…we did this before to finance the cost of World War II…if they do that yields could drop a lot…..the poster child for this lately has been Japan since 2016…we are facing higher debt needs as the deficit jumps with Social Sec/Health Care/Tax Rev & an aging population & this downturn. Japan’s stock index Nikkei recently traded at the same price it was at almost 30 yrs ago & the GDP to debt is way over 200 & we understand their P/E ratio is about 12…so low rates/low growth/low valuations..not tasty recipe. On our radar for income..relative quality/shorter duration VUSFX VFSUX VMBS and for the more aggressive….maybe short term paper on GM & WPX.
Questions or Speak with Us?..email us at option [email protected]
US Dollar/International Markets
Not much to report this week as the Dollar index closed a shade under 100 while the two currencies that are on the ledge remain on the ledge. Something Has Got to Give at some point. The Japanese Yen closed at 107.57 and the 50 day M/A & the 200 day M/A are both around 108.50 so it need to get on it’s horse if we are to breakout to the upside or maybe it will accelerate to the downside instead. The Euro closed at 108.79 and its 50 day & 200 day M/A’s converge around 110 areas so again it needs to get on its horse to get going. The Can $ Aus $ NZ $ all have rebounded after their collapses but the currencies in Latin America (Brazil/Peso) plus South Africa & Russia seem weak to varying degrees. In the international Markets; we see EEM has rallied since the March collapse…had a decent day Friday but overall seems stalled…ditto for FEZ which is it’s European counterpart. As Reggie Jackson said about his role on the Yankees (he was the straw that stirs the drink)…the same could be said for the S&P versus these indexes.
Lots to look at here….Cash prices remain pressured while the June contract trades above 25 a barrel. Rig counts are supposed to be CUT by 33% not easily restarted while Saudi & Russia they will cut more if necessary. Again; our view is that supplies will be L shaped in the months to come and demand may be V shaped which explains our intermediate term targets of 30-40 and our longer term targets between 50-60 dollars a barrel. We also acknowledge that demand is in the abyss and if it remains there all bets are off..but that is not our base case. We thought XOM & CVX were bargains during the drop and both appear ready to defend their juicy dividends… sometimes you have to look at huge volume and panic selling and say to yourself….is all the news discounted?….is there value? so far so good but a 5% break would make trimming and covered write/collars look interesting. Another big one… SLB arose from the ashes after they announced earnings.
Gold Silver Copper
So far holding a core position from much much lower levels has been our opinion and waiting for a combination of a higher Gold price with GDX sustaining levels above 32 has kept us from adding to exposure. The GOOD news…money/credit deficits are far outpacing GDP and rates are so low that if inflation pops…the Gold could fly…..the BAD news is that gold coins are trading at an OFF THE CHARTS premium/ETF’s are raking in the dough both suggests froth & we are deeply concerned with the lag in gold stocks (last time we hit 1800-GDX was about 70 NOT 29!)….somebody’s wrong here… we’ll watch for now to see who’s right….we told you Silver needed to get above the 50-200 day M/A averages @16-16.50 turn turn & above 19-21 to breakout…so this week it traded with 15 handle so it has failed to so far. If it can get going WPM PAAS SILJ are on our radar. Copper is still plugging along in the 2.00 to 2.50 range and our choice FCX up 20%+ in last 2 weeks.
Good news for the Agricultural community this week as $19 Billion in aid was announced and why not….everybody else is getting paid out. The key observation here that may give us a clue..in the past we saw farmers use the subsidies pay down some debt & save for a rainy day…..rather than buy equipment ect. Is that what America will do with it’s found money?..if so GDP could remain stale. As for Beans…we said our gut says that $8 dollars could go to $9 or $10 or more rather than $7 or $6…but our gut is not price evidence…we wait to see wait planting/growing/weather seasons bring us.
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Please consult your brokerage firm, broker advisor to determiner your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
April 10,2020 OPINION & OBSERVATIONS
THIS WEEK..Never a dull moment huh?….This week we saw stock indices have the biggest UPMOVE in DECADES & we had the Fed “Seize the Bond Market” on the same day that 6.6 million souls said they had no job bringing the total to 17 million jobless. It appears Dodd Frank (restrictions-accountability- transparency) has been thrown out the window as banks, the Fed and the Treasury have elected to “make it up as we go along.” LAST WEEK..we told you that if we broke above 2640 we could test the 2790-2850 area (50% retracement & breakdown point) which is exactly what we did. The rally was led by junk (big moves in virus epicenter stocks-hotels-rental cars-restaurants-airlines-oil–cruise lines) which suggests short covering. Remember algos & the like love to press the side that LACKS volume (buying). At 3400 S&P; with the A/D line screaming exhaustion and LEVERAGE + ETF participation at a record levels without increased earnings the stage was set to press the sell side. Now plug in a virus & shelter in place…TIMBER!….we said here many weeks ago that no dealer/market maker is going to buy bonds or stocks but the FED must come in and be the BID…again EXACTLY what has happened……then you get a wiped out market that fell the FASTEST ever that gets way under the long term moving averages (oversold) and the vulnerable LACK of volume short term (selling) so they press it up to get short cover buys…revert toward the mean…exactly what we see now. WHERE DO WE GO NOW?…Our best guess is either toward the 2930-3020 area (61.8% retracement -200 day M/A) or retest breakout point 2640 (we just did) or 2450-2550 area pullback lows. If we blow out 2450; that opens a retest of 2200 or even 2050-1700 worst case. Many still believe (Bill Gates for one) that the Fed does not own a magic wand and the consumer & restart without a vaccine/drug remains murky. Are we worried?…maybe we should be….the world is over leveraged big time and Central Banks are prescribing “unlimited “debt to “solve” the crisis which to any 3rd grader sound stupid. WHO’S IN CHARGE?…we have Mr. Trump who has said that now is the time to slap as much debt (LEVERAGE) as possible on our nation with rates low. Mr Mnuchin is a HEDGE FUND guy who has worked with George Soros-Eddie Lampert (college roommates) also has invested in Trump projects/used offshore accounts. He invested in films like the X-Men franchise & Avatar. He indicated he & the admin want to build wages & get job security for the working man (they missed that boat when the 40% corporate tax cut went to buy backs not WAGES). Mr. Powell came to government as venture capitalist & private equity guy. Why are these guys down in Washington taking these low paying government jobs? There is a lot of long term decisions being made by risk taking speculative guys who may not be around next year. This is the perfect group to run the debt up & create short term asset bubbles followed by more crashes. We just saw it happen to ETF’s recently and maybe next happens to the DEBT MARKET. If we see either Inflation/Growth or Dollar weakness starts a redemption run on trillions & trillions of debt. Dealers must buy into that environment & we just saw they won’t do it. The FED/Treasury is obscuring the real value of debt & equities and doing all they can to get asset values to jump before the election with total disregard for consequences in a “great experiment.” They say they want to take a “snapshot” of the world before March & make everybody “whole” again. Our view is rather than taking public money & making stock & bond market risk takers whole (1% of the population) with bailouts; let them TAKE their losses or hold onto THEIR losses recover…and simply ask every citizen for their 2019 W-2’s and write them a check & refund lost income. These bridge loans will be bridges to nowhere if revenues and cash flows do not recover. RISK..too slow to get the PPP money/companies say better deal to cut staff.
Questions??…email us @ [email protected]
As we said the up move this week was of no surprise as we were way under moving averages and the FED announced their buying binge. The high beta portfolio we are focused on (VGT VCR SMH MGK VYM) still seems to be a reasonable basket to look toward when a legitimate sustained advance materializes (VIX 20-30 range) as the VIX in the 40’s still suggests 3%+ moves up or down may still be in the cards. To say the jury is still out is an understatement as we may see over 20 million claims and GDP drops in the 30%+ neighborhood. Earnings/guidance coming out of SBUX this week was sobering and restaurants & airlines say revenues down as much as 90%. THIS WEEK we get earnings from banks (may be ok as who do you think traded all that stock at the lows & traded that distressed debt which snapped back)….also health care JNJ UNH ABT plus oil SLB and Transports JBH & Kansas City Southern. A taste of what’s happening but not exhaustive. At the end of the day (after the Fed distortion clears) we will have to valuate companies on some metric. We will be looking at the Schiller Cape Ratio which was at 43 now 24 and still suggests relatively overpriced stocks. It takes the price divided by the average earnings over a 10 yr period to smooth them out over o variety of economic periods. Also we will consider book value which is calculated ass the difference between a company’s total assets and total liabilities and it is this metric that some use to conclude many banking stocks are cheap On the international markets… Brazil & Mexico had 20% & 10% Latin American bounces….while in Europe Germany rallied 30% France & UK 20% Italy & Spain 10%……In Asia & Pacific 10% jumps for Taiwan Hong Kong Singapore 20% for China Japan India Korea Australia…could there be a further bounce to come before reality sets in??
Questions??? email us @ [email protected]
This is really where the action was this week as Powell & Mnuchin shred the rule book on money & credit & correct allocation of resources. EVERYBODY NEEDS MONEY….from the individuals & small business, money markets, corporate of all investment grades, ETF’s, Munis (states-cities-counties), private equity ect. and it looks our public money will provide it. We got 3 New “FACILITIES” or a nice way of circumventing the Rules of Fed. #1 MUNICIPAL LIQUIDITY FACILITY ……is needed because state, cities, counties have mandates on balance budgets (would be nice if Federal Govt had it) so they have seen revenues from taxes ect. fall off a cliff. So it’s either cut services or the Fed ponies up with short term (24 month) help to bridge the gap. Another bridge to nowhere as these municipalities have unfunded pension liabilities to choke a race horse…so some say they will be slow to re-open economy and then get in line for a bailout while all this free money is floating around and bet the Fed/Treasury in an election year will play ball. #2 PRIMARY-SECONDARY MARKET CORPORATE CREDIT FACILITY….this one really widens the goal posts as now sub investment grade is on the table and who knows where it ends (they just fired Mr. Fine who was supposed to oversee proper allocation & the Fed can leverage what has been authorized. Junk Bonds and ETF”s ect are now in play thru these “funneled” programs Sure there are some parameters but do you trust them at this point? The MARKETS responded like Tom Hanks in Cast Away when he saw a plane….very short got blown out and short term debt on some of the banks went to NEGATIVE yields!. HYG & JNK: 2 high yield etf’s jumped 10%+ and many of the collapsed PIMCO funds came to life (Fed guy Clarida used to work there)…. At last glance; the bid ask spreads remained wide so after the FED sugar high & shorts cover…obscured prices give way to real values. #3 TEMPORARY ASSET BACKED SECURITIES LOAN FACILITY…..Here the FED is now a player in commercial asset backed mortgages, top rated tranches CLO’s, certain CMBS’s (helps insurance companies) and Apollo Global Management made a plea to get assistance & supposedly floating a $500 million offering.(they had extensive loan business with Jared Kushner’s family business…..again a lot of awfully wealthy guys working in low paying govt jobs). FED balance sheet goes from $4 trillion to $ 10 trillion–120 days as we LEVERAGE America/Revenues later? VMBS actually sold off. On our radar VWLUX VWEAX VWOB VCIT VCLT all were bid up on gaps higher.
This is getting very interesting. Our range has been about 100-95 on the DXY and we saw a breakout to 103 followed by a vicious pull back to 98. Now we have a tighter range of 101 and 98 that may not have along lifespan and could help us with the next important direction in the currency markets. The Japanese Yen & the Euro are trading right around where their 50 day & 200 day moving averages converge and with a sustained rally could spell TURNING point for the Dollar….jury still out. The other currencies like the BP A$ C$ still look like dead cat bounces but could join the party if a party is to be thrown at all…is the Fed wanting a weak $$?
Another one we have been all over as oil shares looked very bombed out to us (XOM 30 CVX 50 area) and they ran as oil went up 50% best since 1986. The Trump deal & Russia & Saudis making nice at the OPEC meeting appears to have been a disappointment ass we warned last week the deal seemed flimsy and the principals untrustworthy. The failure of prices to take out 30 area on a retest was a tell and the sugar high was bound to fade as the reality of supplies and the demand decline reared its ugly head. Longer term; Our view is that demand has a potential for a V shaped recovery (must travel in some way) while supplies may be rather L shaped which could make for a move to fill the gap between 35-40 and maybe see in the 50’s in 2021 especially if the B-52 money being dropped globally returns us to a normalized usage level. Monitor the lows/monitor restart.
Gold Silver Copper
The FED giveaway Thursday was met with big buying in the Gold & Silver as NEM which many feel is best in class for the yellow metal has about doubled from it’s 52 week lows and made 52 week highs on Thurs..Gold futures broke above 1700 last week but spot Gold lags under 1700…some say it is because the cash market is not being used as much due to scarcity (coins have historically huge premiums) so traders are using futures. As we said a month or so ago there was a trader who put up about $6 Mill looking for 1900 to make a max of 100 Mill…of course lose it all if it fails…ouch! SSo where we stand is base positions area hold but GDX still not making new high (30-32 area) and spot sub 1700 and old highs 1900 area intact. IF we take out 1900 (8% above futures) then the door to unknown highs could get open BUT if this thing fails up here the exit door will get really crowded. Sure it looks good no question but we’ve seen some hot blazes turn into smoke & ash..we got our core. Silver is entering the tougher zone ass 50/200 day M/A’s are at 16-16.50 areas…so if we jump above them and ever take out 19-21 neighborhood…the upside possible big….lots of paper currency being printed globally….Copper popped 10-15% but we need a recovery & 2.50+.
Soybeans Soy Oil
Some say supply chains could be disrupted & we’ve said the planting & growing season may hold the key to volatility. We have been moving away from the 8.50 level which we see ass constructive and Bean oil prices have risen away from the 25.75 area…still a lot of big resistance above and while our gut feels that under the right circumstances $8 beans could break to 9 or 10 rather than 7 or 8…..our gut is not price evidence…so we will monitor.
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker, advisor to discuss your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
April 4, 2020 (R.I.P. Martin Luther King Jr.) OPINION & OBSERVATIONS
Ok everybody we made it thru another turbulent week of news and price volatility. Everyone has a view of the truth so we will share ours now. First off; the unemployment, economy (GDP), earnings/dividends, balance sheets (consumer, corporate, federal, sovereign, state, local) are in very bad shape. We view the fastest drop in asset prices EVER to attributed to BOTH bad fundamentals and the virus exacerbating the unwind. FUNDAMENTALS-we did not have the “strongest economy in the history of the world” going into this drop. We had a 40% tax cut and an explosion of corporate debt that resulted in corporations getting a windfall of cash which it had never seen. The decision had to be made as to what to do with that cash and rather than spending it on capital expenditures (growing the business) or wages (you know the guys who do all the work)…..the decision was made to go with buying company stock (buybacks) with free cash flow & borrowed money. This was cheered by shareholders & Trump (although now he says he “thought” they would “do the right thing” and was always against buybacks??). Why not? The shareholders (401K’s) were soaring (as Trump says like a “rocket ship”), Trump could refer the DOW everyday as a barometer on well his “policies” were working..lest we forget also that corporate executives (insiders) bonuses & options were rainmakers. During this time earnings & GDP were moving at a pace far slower than stock prices (earnings manipulated because of less stock). Valuations went to the highly elevated levels in the last 6 months ending in Feb.. Unemployment went to 3.5% lowest since 1969 but the jobs paid like it was 1969! This “great” economy also produced Federal Deficits over $1 Trillion dollars in a late cycle expansion (Clinton’s economy in the late ’90’s was way stronger than Trump’s and was producing Federal Budget SURPLUS! The Federal Deficit is estimated at $3.7 Trillion this year and $3 Trillion next year. So we built a rally on buy backs that could not last, tremendous debt. Engineered Earnings (that were flat for 14 months) and low paying service jobs (sounds like a Straw House). Now we have a time out for our nation and the world (but Europe & Asia were already contracting BEFORE the virus). This “strongest economy in the world” now has 10 Million people unemployed (some say as much as 10 million more to come), possibly 15 million defaults on debts ranging from homes, auto, commercial,corporate, municipalities. We have read that 75% of Americans live paycheck to paycheck and consumer spending is about 70% of GDP (the spotlight is now directly shining on income inequality). SO WHAT’S THE PLAN? Well…if you have a debt crisis (cash flows cut/no money to make payments) you obviously want to respond to it by flooding the financial system with more & more debt…….. RIGHT??….Here comes the FED & the CARES Program & Disaster & Paycheck Protection Program & maybe soon the Main Street Lending Program. Now let’s get this straight…..govts, corporations, consumers, municipalities ect. are overloaded with debt and just got a huge “margin call” and rather than REDUCING debt we are tripling down (at least). These are essentially meant to be 2 month bridge loans…Good Idea? or backing a losing trade/throwing good $$ after bad $$?? The Fed balance sheet has ballooned toward $7 Trillion (was 75 Billion a day now cut to 50 Billion) and rates have been cut to zero….so what’s left is they’ve gotten together with Mnuchin/Congress to set up programs so they can funnel money & stay in compliance. Everyone’s in line for the money from consumers (told don’t pay bills for awhile) to corporations (airlines-Ford wants Cash for Clunkers Program) Municipalities (NY Debt downgraded & need $$ to make payments), Commercial/Apartments (want to forego payments & put arrears on the back of the loan)..even the Post Office is saying they’re upside down by June Sounds like system so built on debt (like a drug) is convulsing and a worldwide injection is being made regardless of consequence which like any drug can be effective on masking the underlying issue temporarily. The engineers behind the scenes pushing up money and credit and our national debt (like a rocket) are Trump, Mnuchin, and Powell….all temporary USA employees. In Atlantic City; Trump’s casinos made 4 trips to bankruptcy court, & he put comparatively little of his own money in it shifting debts to the casinos. As he says; he made money while investors & others did not. At the end of the day; HIGH Debts & LAGGING Revenues were insurmountable. Sound Familiar?…….We pray these tactics work and a rebound is in our futures; but our fear is we may end up holding hands singing “Put your make up on & fix your hair up pretty & Meet Me Tonight in Atlantic City”
Our take on the stock market technically is the S&P throw back rally that failed at 2640 area was about Fibonacci 38.2% retracement of the move from about 3400 to 2174. The move from the recent highs (2640 area) to the pullback lows this week (about 2460) is also about 38.2% which creates a short term window. Since the 36% decline we saw from the 3400 to 2174 occurred in such a rapid manner (deleveraging/forced-panic selling-liquidity crisis) …a degree of bad news has been factored in and the quick avalanche of liquidity & stimulus response creates a risk for the bears. Also; when you break that fast 2 things happen right off the bat….the VIX explodes (85) & the moving averages are way way above the market. Two other things can also occur which is the VIX can settle down and the moving averages can catch up to the prices. Sideways choppy action can achieve this objective and also a reversion toward the mean. If we can take out 2650 we would bet a move toward 2790 (50% retracement) or 2850 (breakdown point) with a max out at 2930 area (61.8%/50 day M/A)…. HOWEVER……….. if we take out 2450 & the horrific data and potential snags with the CARES/Disaster-Paycheck Program spooks the market….retests of the lows and acceleration toward 2000-1700 areas (50% -61.8%) could be back on the table. Earnings estimates of 1.75 on S&P to be cut…how much? multiplier? Some say be careful of piling into virus stocks (TDOC & ZM) while the possibility of PTON improving due to backlog of orders (gyms lose luster). We are watching for a high beta portfolio for risk should we come out of this AAPL MSFT AMZN GOOG FB BABA ABT ABBV QCOM NVDA CCI PHM MU AKAM CSCO INTC DIS SWKS CRM CRWD PANW or ETF’s ass VGT & SMH . We have read that spending on Cloud/Cyber Security expected to be a priority and strong while ad spending buy backs dividends not so much.
Questions…email us at [email protected]
Thanks to the Fed the money market accounts appear safe again while the IG, Govt. Mortgages and muni markets have found some footing with the latter still being a big question mark as the Fed can’t buy forever and these state & local bonds (particularly dependent on specific revenues/hospitals) may still be dicey. Hey guys…the system was frozen 2 weeks ago and the world is awash in debt..yes they have called off the dogs..we’re just not so sure the dogs have left the neighborhood. Our feeling is relatively short term duration Govt backed mortgages ( VMBS) may be a reasonable place to hide out while we see how many downgrades & defaults will be coming. Some of the numbers we read are frightening (15%-30%+ default rates) and the employment numbers (Bullard said 10-40%) and GDP falling (15-30%) ass revenues dry up and expenses pile up. Some improvement in the discount of income closed end funds but still trade behind NAV’s and many BBB’s already trading as junk with yields well into double digits expecting downgrades & selling from funds that must maintain investment grade bonds. REBALANCING is a key word in both stocks and bonds (fueled the EOM EOQ rally we saw in S&P) and may be a big factor in Q2 as well. Some say look toward debt issued by utilities, cable, telecom, towers, health care/pharma for value/ banks look juicy but low rates/recession pose a risk. Look for the Fed to be deliberative now to see how their efforts pan out.
While Bitcoin rallied as much as 70% off it’s recent lows; the Dollar Index has also rallied off its recent pullback settling above that 100 level. The badly hit Can $, Aus$ bounced a bit and may be helped by an oil price rise if it is sustainable. The economic news out of both countries stink but that is par for the course. There had been tremendous hoarding of dollars that hit a pause but the risk to the BP, EU, JY after there rallies have stalled is that both Europe & Japan were essentially in recession BEFORE the virus. Now they’re throwing tremendous debt on top of a shaky foundation. Brazil & Russian currencies (Brazil look like another new currency may be in the cards) are discounted. US Dollar remains the one eyed man-valley of the blind. Above 105…we could accelerate…otherwise range of 100-95 remains.
This week they called the dogs off the oil prices…or did they?? Trump tweeted about talks with two fighters (Russia & Saudis) and they agreed to go to neutral corners (OPEC meeting). Crude price jumped about 50% from the lows (best time since 1986) and 50 day/200 day M/A’s are about 39 & 51. Like stocks; when you throw a ball off the Empire State Building you get a bounce. We feel that could get you as far as 40 (50 day) to fill in the gap but because they’re storing oil in every boat from the Queen Mary to the SS Minow….a range of 20-35 may be best case as moving averages catch up with the prices. That’s not bad news for the bigs (XOM-CVX-COP-PSX) but maybe too late for shale & the OXY’s of the world (although their debt went from yielding 35% to “only” 18%). Hey if flying loses it’s luster then maybe demand for gasoline will spike..with these supplies we could drive to the moon. Is 10-20 off the table?? Maybe for now..need to see more cards.
The Tsunami of debt being thrown at the contraction (margin call) is beyond the imagination. The Big Question…will this be DEFLATIONARY or INFLATIONARY??..Well here’s our take…when you come out of these drops a couple of things tend to happen…a jump in GDP & a jump in inflation. If that’s the case then we would take out 1700 and open up the new high potential and beyond with the long term moving averages which are under the prices and rising continuing to to their thing HOWEVER we still are concerned with the failure to take out 1700 and the GDX failing to get above 30 and sustain the value. Why so concerned?? Because the road to big money goes thru those 2 towns and we are not certain we have not reached the point where DEBT is oppressive to GDP & Inflation…is it combustible?? So core positions continue to make sense and the retail popularity is a turnoff but the big level is 1450 pull back low…1700 highs…go with the flow. Silver is a different animal to Gold (witness Gold-Silver Ratio). It’s recent fall was 36% and so far hasn’t recovered half the drop. Miners like SILJ/PAAS got battered during the decline and 50-200 day M/A’s hover around 16-16.50 presently. A move thru that area coupled with Gold taking out 1700 would be very constructive and if we ever see a move over 19-21 we will be happy to don our Lone Ranger garb & shout hi yo Silver away…until then be cool. Copper is battered by economic decline & China slow to get back on the horse. Holding 2 bucks and getting above 2.50 needed as part of the repair phase and if you are a low term believer..FCX available in the 6 bucks range
Questions? email us at [email protected]
Soybeans Soybean Oil ect
Most ag prices appear to be either range bound or declining based on the economic downturn and the strong dollar. The sector seems to be waiting for what we are waiting for which is news coming out of the planting and growing season soon upon us and how we come out of this recession-like situation….without something to help us break thru resistance the path to big upside not currently there…like all of us…we welcome summer and fall
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker, advisor to determine your own suitability. Past performance is not necessarily indicative of future results USE RISK CAPITAL ONLY
March 27, 2020 OPINION & OBSERVATIONS
OK…not hurting for news this week huh?….we just had the biggest 3 day rally since 1931 & the best weekly rally since 1938 (all after the Great Depression) and we had the biggest jobless claim number ever (by over 4X) and we had the biggest QE (ridiculously bigger than ’08) and the biggest Congressional relief package (bail out) ever again by a ridiculous multiplier. Let’s put our common sense hats on here and guess why such a big bounce back? Well in about 1 month the S&P fell about 35% and took with it the financial system. We saw forced liquidations, huge volume, panic selling, a stampede into bank deposits & money markets ($400-$500 Billion), credit markets freezing and the fastest pace ever drop into bear territory (19 days). Now this week the Fed goes nuts with QE and Congress goes with $2 Trillion…plus they can leverage part of that (as much as 10 to 1)…we are ridiculously oversold so of course you are going to see a rip to the upside on short covering, algos & book squaring into a no seller scenario. Friday we got a reality check as the market snap back ended after we got about an 39.1% (Fibanocci) throwback toward 2650 area. A possible rally for the last 2 days of March (Mon/Tues) could coincide with EOM re-balancing as 60-40 stock portfolios got out of whack and so adding stock at the end of Q1 here is possible unless it was primarily done this week. We stated many times as long as the VIX is elevated (still in the 60’s) expect wild swings/wide ranges. As we get into the first 2 weeks of April we will tear the band aid off this bad situation and get a peek as to how bad is the resulting wound. Earnings, PMI’s, Jobs Data will be coming shortly and while 3.3 million unemployed in the first report some believe was “discounted” it was accompanied with the over the top Fed & Congress action. When we started this decline @ 3400 S&P the valuation was way more than in 2007…and if you take the market cap-GDP ratio measurement….we may still have a lot of re-valuation to do. Some Fed guys look for a quick return back while others see a longer run. We got a shot in the arm last week but shots wear off/leaves recovery values. The world has gone nuts printing money issuing debt credits or whatever you want to call it. We are not certain if this is Christmas in March or Global Desperation and maybe desperation doesn’t end well. At the end of the day Stocks & Bonds have valuations….how do you valuate? .Lots of things hitting the fan in April and we will glean more information of which to answer questions such as Virus status, PMI’s, Earnings, Credit Markets, Govt programs, Return to Work projections, Consumers & more. While some say 90% of major stocks may have seen lows..not our Kool-Aid.
Questions..email us at [email protected]
Let’s start with some perceived positives….insiders (corporate executives) have been buying up a storm….do they believe in their companies or is there an ulterior motive? Some names Dell, Oracle, EQC, Alliance Data & CIT and many others. Cash has been ripped out of the stock market and landed in bank deposits & money market ($400-500 Billion). This can be a positive if it comes back in but we don’t know how old these investors are and have their risk appetites may have changed…this is the 3rd crash in 18 yrs (’02, ’08,’20) and for some it could be getting a bit old (Patriot Act/then QE/Now Unlimited QE). But the Fed game of kill the saver-force risk taking is ON! Banks supposedly have good payout ratios for their dividends and their debt was wobbly until the Fed came into IG and now near back to normal. The bank’s P/E ratios are 1/2 of utilities which are also getting lots of bids.With the market selling off some say it’s time to re-balance your asset allocation (add stocks) if you believe in the longer term (3-5 yrs out). Consider high quality brand names, 5G, Cloud-Edge comp cyber security. Digital transformation like MSFT & CRM–AI like GOOG–Uber LYFT could see many more drivers with the unemployed….be careful…VIX is very high still. & we just had a house of cards crumble…early to say lows are in & one scenario we discussed is a wide trading range of 2850-3000 top 1800-2100 low and swing around there until moving averages settle in with new prices & the VIX settless down to a reasonable 15-25 range…it all takes TIME!
Well this one was falling apart before the Lone Ranger showed up (the Fed). Remember that Bonds trades thru dealers and if a house is on fire the dealers are NOT going to throw their check book into the blaze…..they wait for the Fed to become the bid (let them torch their money it’s only stuff they created out of thin air anyway). Short example of what happened as commercial paper, treasuries, corporate IG, munis, mortgages, etf’s and much more needed someone with cash and reckless abandon to step in front of the tsunami of liquidation and redemption runs which we spoke of many many months ago ass a possible resolution the ridiculous continued QE the Fed policy makers kept us on long after the ’08 crisis. They created the asset bubble cheered by the administration (30,000 DOW) got stuck with it’s consequence…now the Fed adds trillions of dollars of debt on top of a debt crisis commandeered by temporary employees leaving a lasting legacy for future generations. Is there a risk to helicopter money (more like B52 money), extending credit to broke business, telling banks CECL (loans) suspended , using leverage on money set aside for relief…we’ll see. Munis had it’s biggest rally since ’82 and IG corporate got a bid…let’s see if HY & asset backed-securitized debt plus so much other debt not supported plays out. We hear some say value is in Sovereign emerging market debt and watch for downgrades and especially in the crowded BBB space. Energy, travel, cruise ship, car rental, hotels remain out of favor…stay tuned. In short…the Fed seems to be buying IG, Munis, ETF, Treasuries..MMKT.
Our view was that the range for the Dollar was about 100 to 95 and it stayed in their for a long time. We felt a break above 100 could see a pop to the upside and we saw just that to 103. Now we have a 98 handle because the Fed & Treasury & Congress have decided to allocate credit at such a enormous level & the Budget Deficit is exploding to such a degree that the dollar is being faded again. Looking to the BP, Euro, Yen has begun to lure investors away the dollar…struggling currencies CD AD & other oil and commodity based currencies could have a better 2nd half if things turn. The whole world is printing and we’ll be watching to see the future of fiat currency evolve in front of our eyes….could we ever see another Weimar? The dollar hit 120 during the Dot Com boom and if we blow out 105…look out. If this over the top extension of credit to anyone who can walk & chew gum ends badly then 90 & 80 is not absurd….follow money flows…be careful
Our view is that he Saudis said they will pump thru May and they weren’t kidding. USA was supposed to talk and Russia was supposed to scream uncle but neither has occurred. According to reports the Saudis are ok at 15 per barrel pre dividend with ARAMCO & 3 bucks out of the ground so that 15-20 in the first half of the year appears in the cards…2nd half may be a horse of a different color which is why we like XOM & CVX (who sounds like they’ll honor dividend) will come out as relative winners & worth a look. Canada sand guys (SU) & our shale guys are in big trouble as well as debt laden firms…could be a batch of defaults coming down the pike. Watch other big guyss like RDS.A & BP, COP and others & the debt of OXY for clues.
Gold Silver Copper
OK looked at quite a few charts and came to the conclusion it’s getting to be High Noon for the Gold. If we can clear 1700 a fast move toward 2000 or so if backed by a good fundamental..why? well the whole world seems to be making a joke out of paper money as even questionable countries are coming out with relief packages in the billions. The one – two and three year moving averages look ok and the move to down to 1450 appears to be a garden variety pull back. HOWEVER…..the GDX has failed to sustain above 30 and we failed to take out 1900 so far so 1700 is a lower high. Also retail investors are buying up gold coins at the fastest pace on record in some cases. So if we slide under that 1450 area an acceleration to the downside not unlike we just saw in stocks could occur as Deflation from asset liquidation and a strong dollar could shock the gold bulls…Stay Tuned. Silver & Copper are industrial metals and have been caught in the slide.Clearing 15 Silver & 225 Copper would be helpful but downtrends.
Soybeans & others
Still waiting to see if Soybeans & other ags (believe they get money out of relief deal) will get news and be able to push thru resistance …need 950-10 to get beans in a place where they could accelerate….the season dead ahead.Brazil is such a mess…maybe USA not able to compete on price. Vanguard has a Commodity Strategy Fund VCMDX get a prospectus and learn more…bad return so far this year (like most)….a diversification??
REMEMBER There is a substantial risk of loss in short term and option trading and it is not right for everyone. Consult your brokerage firm broker, advisor to discuss your own suitability. Past performance is not necessarily indicative of future results Use Risk Capital Only.
March 20, 2020 OPINION & OBSERVATIONS
Well..the Good News is we are week closer to getting to finding a turning point! We are going to give you a review and a preview of what we see right now in stocks, bonds, dollar, gold, crude oil ect.. No need to go over the obvious with you…but if you want me to describe what has happened in two words it would be “Redemption Run”. While we all have seen the hoarding of toilet paper and pasta; we look only to the stock and bond market to see what they are doing with their portfolios..they are hoarding cash! Hey this redemption run was warned by us months ago (albeit not with this unfettered speed) but these ETF’s being sold as proxies for sectors with underlying non-liquid assets and the public piling trillions of $$$ in for 11 years was not going to end well…and it hasn’t. REVIEW We felt the rally above 3050 S&P was suspect as no GDP & earnings growth occurred by rather a stretch in valuations….if it doesn’t make sense it won’t last. Now the consumer is 70% of economic growth and he was spending a lot and working in a service economy. Companies took their tax cut and spent it on buybacks to “manage balance sheets”. The next move was to go after the debt market by offering yield hungry investors low yielding bonds & badly collateralized loans. This leveraged their companies (60 billion for some 45 Bill $$ for airlines). What did they do with the proceeds?..you guessed it…they bought more of their own stock. This artificially bid up stocks to a level that when the first interruption came the stock and bond markets have fallen like dominos. Why not….most people and companies cannot handle a one month interruption in their cash flows and rather then getting ahead of this in Jan..we’re looking for masks in March. We have seen unreal order imbalances (sells) in Bonds & Stocks because 11 years of people plowing in (particularly the post tax cut overvaluation run) has no buyers on the other side. Margin calls, forced liquidations and a stampede to cash. It’s a liquidity crisis we discussed in these updates for a long time before social distancing became the norm. The Fed is trying to be the bid in everything right now and that smells like 2008…although in 2008 it was homeowners and the banks in the mud…this time every hourly & tip earner, 401K, bondholder, travel & leisure & most every citizen is in the mud…so to make a case that the damage has the potential to be more pervasive is not far fetched. It’s an across the board Redemption Run with an unknown destination. We have our best guess-we will share our opinion.
Some various thoughts with an opinion….many dislocations..bank stocks trade behind tangible book value…10 day implied volatility most since 1929-2008 1987 all bad times…revenues collapsing in some sectors like airlines -80%+ and we saw that occur in China ass Adidas said revenues fell 85% YOY…dividends in many cases may be on the chopping block…Transports & Russell have declined to 2016 levels which may mean more to come for S&P….China got back going in 8-10 weeks but the virus was somewhat regionally contained and they have a manufacturing economy while the virus is in 2 very populated areas (California-New York) and we are a service economy needing consumer discretionary purchases to grow….the Dec 2018 2350 level S&P was touted as support but today we closed under that level and futures hit 2260 at the low. Lock downs in NY & CA was not welcome news and quadruple witching today saw 23 million option expire and volume explode…..VIX has hit 85 a few times this week but has faded by late week/maybe drop further next week?.. and must come down if we are to find a low…..some closed end funds and mutual funds are trading well below their NAV which is evidence of the non liquid nature & order imbalances….RECESSION talk…some say the 3 month Treasury vs the 30 yr Treasury is the one to watch for inversion to forecast a recession..well that inverted in June 2019…so some said a recession in 2020 would take place (they look right)…..some say the recession began in Feb 2020 (can we argue?)…..we have heard it will be hard & fast and last about a year. Who knows?…but right now we are in the same ballpark based on what we see…humility & flexibility can go along way in avoiding trouble….LEVELS..we are looking for the 50% correction of the move from 2008 low (S&P 667) to the 2020 highs (about 3400 S&P) which is the 2000-2050 area or a Fibonacci retracement of 61.8% which is about S&P 1700…numbers coming out potentially very ugly (Thurs unemployment estimates average 2-2.5 million-astonishing) and the Q1 & Q2 earnings, PMI’s, GDP numbers more than likely will be cringe worthy. Some quant guys are saying that we should focus on potential positive returns in 2021 and some say remember to be greedy when people are fearful and be fearful when people are greedy. We will be a lot more comfortable when we hear them rollback two words “Social Distancing”…..but here’s some potential things on our shopping list…..growth was the leader before and it may lead us out (5g, Cloud-Edge computing, Cyber Security, consumer discretionary, communications)….dislocations like transports (UPS UNP)…energy (XOM CVX)….usual suspects MSFT AMZN AAPL the Semis, GOOG….discounted brands (GM HD TJX TGT SBUX NKE MCD JPM JNJ V) and many more…..a reversion to the mean could rally to SP 2550 (10 day M/A)…
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We will give our opinion and best guess…Again…not a real surprise here when you consider the lack of liquidity in these instruments for mass liquidations (redemption runs) which is exactly what we spoke of here in these updates for a long time. The Fed is adding enormous liquidity and will have to continue to do so. They are now buying Munis and commercial paper and maybe corporates before long. They want to help money market funds honor the buck and state and local municipalities are looking for block grants and a bid. Now investors who were hungry for yield and save money for a rainy day…well it’s raining. Look around at it all…some closed end funds & mutual funds trading at a discount to NAV….bank debt in the 4-6% range for short intermediate & long maturities…..look at the debt of the dividend aristocrats…if they can raise and pay dividends maybe they can afford their coupons….convertible bonds paying 4%+ and have a stock purchase kicker could be interesting..you gotta do your homework but the yields are getting juicy..in fact the spread between various levels of corporates is now at levels where they have been only 10% of the time historically…..preferred have gotten nailed..maybe some are worth a look..we are entering what has been a value zone as far as yields and price .but…CAVEAT EMPTOR….a value zone is often not a great timing tool….so with this big of a redemption run & the unknown of how long the virus lasts…and how consumer behavior will be affected….the RISK is elevated…so…like stocks or anything else..do your homework…and be aware that volatility could be significant as we are approaching levels last scene in 2011 with the Sovereign debt crisis and we don’t know in 2008 crash levels could still be a possibility…securitized & asset backed debt are of concerns and some say we are trading 80 cents on the dollar and sometimes that number can go to 50-60 cents on the dollar if things turn really south. Spreads seem stretched but who’s to say where stretch ends/defaults begin. During ’08 crash the Fed had 5+% to work with and now they have about none so look for an explosion in the balance sheet as we go from 20% of GDP up toward our pals in Europe & Japan that have huge ratios. TLT still looks like it could have seen a generational top at 180. It may be because the massive Fed liquidity response will surprise people and send yields up as the panic into Treasuries seemed to reek of capitulation.
Well worldwide providing liquidity id on as Abe & La Garde & Merkel-Macron all sound as if there is no limit to what they are prepared to do. Some of the international markets have gone to or surpassed the 2016 levels so if things stabilize they may offer an interesting diversification value. Since 17 Trillion or whatever of negative yielding debt is absurd but real; our thoughts do not revolve around any interest in their debt.
We’ve had a pretty good read on the dollar as our belief has been that we were in a trading range of about 100-95 which lasted for a long time with some bounces therein. We did state that a move above 100 could bring in a dollar stampede (not unlike our thoughts that a move over 145 TLT would bring in a buying stampede to Treasuries) which so far ha occurred. Will it last?…well our yield advantage is certainly on it’s way out the window and our “strongest economy ” ever was built on buybacks on borrowed money & overvaluation. But; the Dollar is the one-eyed man in the valley of the blind.Three lovely places to live with beautiful scenery which recently saw their currencies approach 50 cents are New Zealand, Australia & South Africa. If fiscal comes out of Germany & UK…..keep an eye on the BP & Euro.
Biggest week up and down that pretty much the market has ever seen. Russia won’t be black mailed by Saudis (they usually do the blackmailing) and Saudis yanked their money out of oil when they sold ARAMCO during that phony engineered rally to 66 which collapsed once that money was in their house. NOW….it’s all about market share and what better way than to make your competitors go broke. Russia thinks they can play ball in Saudis league but we believe they can’t. Our understanding is Russia needs 40 bucks or better to make money and Saudi can take it out of the ground at 3 bucks and make money at ARAMCO at 15 bucks pre-dividend. The math doesn’t seem to favor Putin whose country depends on oil for 70% of it’s revenue….so Saudi wants market share and kill the sand business (Canada & the shale business (USA). The idea of pumping thru May seems to coincide with a hopeful summer driving season. Trump may get involved..why wait? Our guess is the big boys XOM & CVX to come out the other side as winners. We look for crude to possibly trade to 15-20 bucks but not last…reversion trade took you to 28-29 (10 day M/A) and now back in the soup on sub 20.
We have been all over the Gold story since the breakout above 1350 the move the 1580 resistance (2012 lows were resistance) to the holding of support at 1450 to the run to the Tudor Jones target at 1700 to the current pullback fueled by worldwide asset deflation. Wow..so now what? well our view is that when they are done bailing out the worldwide stock & bond markets with currency expansion beyond your wildest dreams that paper currency skepticism & possible inflation (Treasury debt blow off) could bring the bulls back to the market. Reversion rallies have been limited (1560 10 day M/A) and support is 1450-1400 & breakout point 1350. We have blown out speculators leverage players but may have more work to do in the weeks/months ahead….if we break 1300-1200….then deflation won. It was reported an option player bought a spread on June Gold for 10,000 oz looking for 1900 + by expiration..$6.4 mill bet…if 1900+ at exp. = $100 Mill. Good Luck on that one…..Silver really wiped out the longs and is trying to bounce but the business breakdown hurt this industrial metal even more than the Gold. We said the copper had to hold 250 and if not 200-220 you go..where that’s where we’re at…waiting for China to reengage and buy.
Soybeans & others
Commodities on balance beaten down with the economic meltdown…no restaurants open so cattle prices hurt and some California farmers say they are hurting. Corn, Wheat Soybeans all caught a bid this week..as we have stated we felt the planting & growing season may provide some news that could finally get these markets moving above some fairly sturdy resistance.The Vanguard Commodity Strategy Fund has sold off more than 20%+ from it’s highs so read the prospectus if you want to learn more.
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker , advisor to discuss your own suitability. Past performance is not necessarily indicative of future results . Use Risk Capital.
March 14 2020 OPINION & OBSERVATIONS
WOW!….last month after seeing the market as overpriced overvalued and over leveraged…we felt a pullback on the S&P toward the 200 day moving about 3000 made sense but always felt that the market cap to GDP ratio was very elevated and maybe explained why Buffett was sitting on so much cash. Well..we now see why. Some realities have reared their ugly heads like the fact that the tax cut that went to corporations was used not for capital expenditures/higher wages/ pay down debt but rather to buy backs of stock creating as a way to redirect attention away from slowing GDP/Revenues/profits and earnings to simply stock prices which everybody loves when they rise….also with the Fed dropping rates so low then forced people further out on the risk spectrum into Bonds (leveraged loans-high yield-junk-emerging markets ect) wherein some companies took those proceeds and bought more of their own stock…that’s a lot of temporary buying. The problem is you need more buying to sustain prices (the public-hedge funds retirement plans ect were all in) at lofty levels not based on fundamental strength but rather some may say creative accounting. When the virus hit China; I was listening to Paul Tudor Jones’s interview in Davos where he said this virus was serious and he would be very concerned to be long stocks. This was followed by China shutting down cities and businesses (supply chains) and announcing a PMI number of 35 (below 50 is contracting) which was followed Japan Q4 GDP contracting by 7+%…bad #’s. The market has gone through many numbers like a knife through butter because liquidity has dried up as no one knows what GDP 3’s will be and earnings so how can you valuate stocks & bonds with any confidence. The Transportation Average and the Russell (DJTA & RUT or IWM) failed to confirm the new highs (topped in 2018) and have now taken out the Dec 2018 levels and approached 2016 levels before rebounding on Friday. On the positive side; it has been reported that insiders bought more stock in the first 2 weeks of March than anytime in 9 yrs and there has been a panic by many into money market funds and the selling volume has been huge. We are very oversold technically and some say the public stops panicking when governments start panicky…well worldwide governments willing to throw cash at this thing has zoomed thru the roof. BUT we needed Central banks not to drop interest rates (European loan demand collapsed) but be the buyer of last resort of bonds and stocks as the corporations who were buying their own stock/the public and institutions were nowhere to be found (liquidity). On the negative side is the unknown and consumer psyche when the flu fades (hopefully) and there we look to China. It took 4-8 weeks after quarantines for people to go back to work and stores to re-open. Adidas CEO was saying Q1 saw an 85% decline in revenues Y/O/Y and that now it has been slow to recover because buying athletic shoes are not first on consumers mind once things reopen. We re hoping that the panic we see in consumer here (going to cash in stocks/buying up all the water & toilet paper they can find/and governments willing to print- lend-forgive “whatever it takes without limit” is a sign that we will stabilize markets & fend off this flu virus and come out the other side by Q3 or Q4. The unknowns of credit downgrades, credit defaults, repricing re-valuating markets that were way overvalued (market cap to GDP) is of greater concern and frankly no one knows the outcome and only a fool would say. The market’s overvaluation leverage complacency liquidity was exposed. Questions..contact us at [email protected]
Where to start?….Europe & Asia were both in a slowdown (recession?) BEFORE we got hit by this virus and GDP in the USA wasn’t looking good. We seem to be in a bit of a lock down worldwide and conventional thinking is that the virus is transitory (gone by summer) and then free credit and stimulus puts us right back on the bicycle with the consumer back at it again…maybe?….certainly many companies we watch are on sale MSFT, AAPL, AMZN, GOOG,JPM, C, WFC, BAC, PRU,BX,GS MS UPS,DIS, SBUX, HD, NVDA,ADM, , UNH, JNJ, AMGN, ABBV,COST, and many many more. Plus; we see many of the dividend aristocrats have been on the chopping block. Finally some of the closed end funds are trading at a substantial discount to NAV due in part to liquidity issues. The sell off (ETF-Index related) has been indiscriminate and therefore stock selection ss very interesting due to some stronger companies were dumped out with the truly troubled ones.Having said that combined with some of the aforementioned points; there is a lot of unknowns and ass the old adage says “when the tides change you see who’s swimming naked” which is very apropos we believe for the current market. So our best guess/hope is as follows…..the VIX is at 57 and hit 77 this week (the highest since the crash)…we don’t believe it will go in a straight line to the 15-20 zone of stable bullishness. But IF things stabilize relatively quickly ; then the idea of a trading range to work off the excess volatility in the VIX makes sense with the ceiling of the top coming in at ballpark 2875-3050 (basically coincides with the 10 & 20 day moving averages) and the floor down at 2300-2400 where the recent and Dec 2018 lows come in….yes that’s big but we’re coming off 77 VIX, a global shutdown, and a consumer panic. The next zone under that is the high low for 2016 which is ballpark 1800-2200 which I am sure the Fed & the administration will fight tooth & nail. Our big worry is that prices of the Dow Transports & the Russell 2000 went into levels not seen since 2016 last week when they were on their lows and the Transports & Russell were good indicators for questioning the Oct-Feb S&P rally so we would be foolish not to give that fact appropriate weight. Indexes in Europe, Asia & Emerging Markets have revisited 2016 as well..
Questions contact us at optionprofessor @gmail.com
Another one of those where do we start?….well let’s start by opining on the lack of liquidity in high yield, leveraged loans, investment grade, munis and treasuries which was astounding. As we said for a very long time; ETF and passive investing works on the way up but if everyone wants out at the same time there may not be much of a bid on the other side. For those of us that thought investors were reaching into the toilet to get yield..those fears came home to roost. HYG traded behind NAV last week and to levels not seen since 2016 which was another ominous sign that triggered big intervention by the FED as spreads on our best credit (Treasuries) blew out. Everything from short-intermediate-long term paper was getting sold and lines of credit by Hilton, Wynn & Boeing certainly didn’t boost confidence. Munis were sold as state solvency was of concern and leveraged loans, asset backed loans, and others lost their bis as spreads exploded. Can you blame them? The ability to determine what’s backing the loans was questioned plus hedging costs for payment risk zoomed. Also CECL was a concern as banks may have to reassess the status of borrowers of existing loans and change the risk level of their outstanding book. The new isssue markets have been kind of frozen here and abroad..another sign of worry. Now it looks like full scale panic by worldwide governments that state they are prepared to give, loan, forgive and whatever else needed to halt the liquidity crisis and while they seem 2-4 weeks late…better late than never….all is on table. Closed end funds are trading at big discounts to their NAV’s but can you trust NAV’s where the bid is questionable? Big week this week Mon China retail sales & G7 meets Tues USA retail sales/industrial production Wed Fed cuts (most say 100 basis points) but if the follow the lead of ECB no cuts more QE ….bridge loans could zoom with cash cut off. So where to look when all is on sale? How about short term & longer term investment grade, high quality munis, preferreds to name 3 right off the bat. Now if we are to stabilize here and the virus is transitory; this bargain hunting in stocks and bonds may be reasonable; however if we’re to revisit 2016 levels like some indexes/bond sectors have done then caveat emptor. The Bond Market was exposed for its liquidity, covenants & leverage risks.
Questions contact us at [email protected]
As we have said for about 2 years; the index has been range bound at about 9950 and 95…we peeked out of both sides temporarily and both times it lead to big changes of direction (100 led to 94.5/and 94.5 led us back toward 99…lots of volatility within a range. Now maintaining above 98 and blowing out 100 could lead us to a Dollar stampede however our yield advantage should be out the window this week and our economics don’t look so rosy now (whose does?). So as we’ve said the Dollar could be the one eyed man in the valley of the blind (yen-slow GDP/VAT tax/236 debt to GDP & the Euro has negative rates and a commissioner not talking savior like (that could change). In fact; our opinion i the Fed balance sheet is about to explode as USA debt to GDP around 20% pales in comparison to Europe 40% and Japan over 100% and this was BEFORE the printing binge we’ll see soon In our view; this is where the Fed will and should come into play…expand the balance sheet/leave some room to cut further when & if loan demand materializes and spend your targeted money where it’s needed…providing a bid in stocks & bonds to calm everyone…makes sense we could see better prices by the end of month before the March statements go out/avoid panic.
Sounds like a broken record….but this is the second punch to the gut (the virus is the other) that served ass the match to light the flame. Well…when the Russians & Saudis want to fight…they really go at it huh? Russia wants to kill the shale producers (probably so does Saudi) and as we told you forb months..after Saudi dumped the 2.5 Trillion in Aramaco when they pushed oil to 66…no need to sustain prices after that …they just got their money out ($2.5 Trill)….but a good time to mess up USA oil and eliminate competition. This was tried in 2016 during the last growth scare and all it did was make the industry more efficient and send everything up. Now you’ve got the majors some of which have huge bank rolls to buy shale guys at pennies on the dollar and consolidate the industry. While there is still a chance for sub 20 levels temporarily; our view is the bigger guys XOM CVX HESS and others may come out of this and could be something to look into at 50% + discounts from highs in some cases…still looking for 47% oil energy share.Market share wars where you both lose tend to get resolved & Trump is supposed adding to the strategic reserves. Lower gas prices..consumer ++
Gold Silver Copper
As we’ve been saying Gold broke into a bull run when it broke above 1350 and Paul Tudor Jones early on quoted a 1700 price target. Well it did all that and then it entered into the Show Me state….meaning we wanted to see GDX get above and maintain 30 (now at 2016 prices) and wanted Silver to get above 19-21 per oz to reinforce the bull as stories like record retail sales of Gold coins started hitting the tape. When deleveraging happens in stocks and bonds occur (big time last week)..some say that’s Deflationary and leads to a strong dollar…double whammy for Gold & Silver (which always lagged evidence the Gold-Silver ratio)….Gold saw it’s biggest drop in a very long time and Silver was no slouch falling at twice the rate of Gold. Now the 1350-1450 area which was support before is a line in the sand and maybe if the Governments can stabilize the equities and debt markets…the conversation will turn from deflation/recession to paper currency madness Copper was trying to hold the 2.50 area as China is trying to stabilize (cases shrinking/normalcy returning) which we believe is imperative for a copper run to higher levels later on…otherwise into the 2-220 soup we may go.
Many ags were under pressure like everything else. We look to the planting and growing seasons and stabilization of financial markets to see if we can get the news needed to overcome resistance at 950-100 area although it seems China may use Wheat as their US crop buy while taking advantage of the currency/economic collapse in Brazil to grab beans at a bargain.
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker-advisor to discuss your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
March 7, 2020 OPINION & OBSERVATIONS
Last Week was a continuation of a relatively probable opinion that we’ve had for some time. Let’s recap….when we went on that ridiculous Oct ’19 to Feb ’20 run based on weak GDP, lackluster earnings & revenue growth, massive overvaluation (Market Cap to GDP) and with more technical warning lights flashing like a Christmas tree plus an almost 400 point premium to the 200 day moving average on S&P…we felt the odds were not favorable and the market could see exhaustion going into 3400 ass we felt it had no business breaking above 3100 in the first place. We discussed various ways to reduce risk in portfolios (among them- option strategies like Collars, Married Puts, Covered Calls & asset allocation adjustments-such as if you are 80% Stocks/20% Bonds or the ever popular 55-60% Stocks 45-40% Bonds….one might adjust the weighting as to increase the Bond % while reducing the Stock % but of course consult your brokerage firm/broker, taxman ect to determine your own route to follow as one approach is right for everyone. There is a risk in taking action and sometimes there is a risk of not taking action. We started in Oct 2020 in the S&P 2800-2900 range and so far we have essentially wiped that the ill-deserved rally. Two areas that we harped on that kept us out of the wildly bullish camp were the Dow Transports & Russell 2000 (RUT) both of which failed to take out their 2018 highs and have since rolled over-DJTA big time! The world (Germany Italy France China Japan (VAT tax)) all had flat-down-shrinking growth numbers BEFORE the Virus so imagine what the numbers will be now?? China announced PMI numbers at about 35-….shocking…USA? We said that a VIX 10-15 is bullish…15-20 Neutral…20-25 favors bears above 25-40 usually means the abyss…stubbornly high can mean up 1,000 down 1,000 days like last week. We are here NOW….so let’s opine on GOOD NEWS BAD NEWS……as we go on remember our main feeling is that if the Virus in gone within a few months (summer)…the odds the pullback is a BUYING opportunity increases substantially….but if we must wait 18 months for a vaccine then we are looking at a horse of a different unknown color. Our opinion is that the GOOD news starts with the fact that we’ve had an unprecedented drop (although 6x in history we’ve had a 10% drop) and 3 mos later and 6 mos later the market had good advances. The VIX spike has been the highest since 2008/2011 and we also saw a historic number of 90% DOWN days ((90% of all stocks down) which have coincided with important lows with the exception of 2008. Deleveraging to a great extent has occurred but a decade of passive investing could get unnerved without stabilization soon before those March statements go out. GOOD news is the FED & Central Banks worldwide are on the move and if fiscal or targeted injections of liquidity materialize…more good news. Now we believe this interest rate drop and printing money bonanza at the FED is not totally unwelcome and needed to be done anyway as the Dollar was to strong due to our yield advantage (going going gone) and the deficits are going through the roof and will be financed by substantially lower borrowing costs..good. More GOOD is that the millennial generation is now employed, finance a home for about 1,000 bucks a month fixed ( household creation yeah!), maybe re-fi that student debt or since we’re printing overtime maybe seek forgiveness. USA debt to GDP ratio was at between 100-110…you can expect that to rise hopefully not to the level of Japan (236)! Many Sectors have been hammered (Energy-Airlines-Cruise cos.), some corrected (Financials-Transports-Disney-JP Morgan) but many still sub 20%. Internationally; many country ETF’s are near their Dec 2018 lows so we’ll see how it plays. NOW…we turn to the more worrisome side which of course starts with the premise that the Virus is not transitory (done by summer) and that business comes to a halt not a pause. The Dow Transports have taken out their Dec 2018 lows and since they were a key factor in our avoiding the top it may be a key factor in us getting back in prematurely. The all important Tech Sector has a long way to go if we are to retest that low area and since MAGA (MSFT-AAPL-GOOG-AMZN) are at the top of many index lists….it’s scary. Also valuations returning to their lofty levels is not assured but with interest on Treasuries so low that game could return. Supposedly Buffett values the Market Cap to GDP ratio (Russell 500 to GDP) and that relationship is concerning as it is at the same level as 2000 and 20% higher than 2008. He’s not sitting on a hoard of cash for no reason. If you’re Bullish you better hope with Treasuries so low that our darling T.I.N.A. (there is no alternative is more alluring than the bean counters who actually must calculate how much to participate. One other GOOD thing potentially is the Dividend paying stocks that have current Free Cash Flow Yields above 10% (ability to pay) and whose yield range from 3.5% to above 8%. High Yield spreads are in and around 500 so historically 600-800+ has been an area of interest. Some just like one stop shops like QQQ, SPY, IWM FXI TLT when it’s time. Fed’s worried about system & consumer freeze up…..me too. Contact us at [email protected]
Last week the VIX remained elevated above 30 and spiked and the gyrations were in line with a high VIX….expect more of the same until the VIX settles in at least under 25 which may take time. We like to use market ranges and parameters rather than to play Nostradamus….so here’s our take…the ceiling has been established at S&P 3400 with the low at 2850 and the 50 day M/A @ 3250 area & the 200 day M/A @ about 3050….the rebound high was about 3125 and the lows of late Feb (3200) plus the gap at about 3275-3325 may be addition resistance. Importantly; we see support at the 2850 (about 50% correction of the 2350-3400 move) with slippage taking you to 2750. If that goes a last stop could be 2600 followed by the Dec 2018 lows around 2350. We expect volatility and price swing to remain wild as long as the VIX is unmoored. Should the Tech sector does a major fade on concerns about supply chains, demand- growth or valuation then we believe the odds of following the transports and international markets towards the Dec 2018 levels increase. We still believe the money for no interest & demographics & tax rates & deficits could finance a potential move toward 400O+ in years to come after we come out the other side. Lots of bargains potentially but selective over time is our mantra currently…technical & fundamental damage has been done.Careful….we have some bargains…more to come?
We felt the trend for rates was down of course no one imagined the parabolic speed that rate rates have collapsed. Treasuries look like they are on their way to ZERO but caution TLT (long term Treasury) is way above its 200 day moving average & everyone is on the easy money bandwagon. Felt a little like a blow off last week but the flight to sovereign debt is mammoth & historic…heck they don’t even pay interest or less in some countries..Mad. Right Now…Credit Spreads in the 500’s not really juicy yet and down grades could be on the way for BB & BBB’s…the health care & energy sectors are under the microscope as well as others…the FED is on guard monitoring the system as they remember from 2008 if credit/liquidity freezes-it could be game set match. Leveraged Loans & CCC’s and others are on the risk radar. Again..if business halts..some companies can’t afford the cash flow miss.Some believe in longer dated money center bank debt…we’ll see.
We’ve said for some time that the dollar is range bound between 995-95 where it has resided for some time..not buoyed by our “great” economy & growth but rather our yield advantage over other countries (Japan -China-Europe)..well that went out the window last week and the Dollar hit the skids..now putting it in perspective it just reversed a false upside breakout and put us near the lower part of the range at 96 but it’s downsside momentum is palpable and should we break 94-95 like a knife thru butter…then the door opens for 88-90. The Fed wants more inflation & growth & the admin wants a lower dollar/rates to compete..well you got it! Again all currencies look nutty with the Debt to GDP ratios very dodgy.
As we told you after ARAMCO sold all that stock the need to keep prices elevated went away and so did 60+ crude oil. Now OPEC can’t get cuts (Saudis acting as if they want to cut-they got paid on ARAMCO why do they care?).Russssia gets hurt under 40 they say..we’ll see..now if we hold 40 and reverse…are XOM,SLB,COP,CVX, HAL, BP, RDS.A good values or will they follow the oil companies who may default on debt due to low free cash flows? Stay Tuned it could get wild in the next 90 days.
Gold Silver Copper
We are a bit torn as Gold had a great week but Silver & the mining shares not so much…we have been all over the Gold since the break above 1350 rally to 1580 pullback to 1450 and subsequent rally to the Tudor Jones target of 1700…but since then not so much progress….so if we fail to get going a pull back could occur as the popularity of be bullish is out of the bag…Gold-Silver ratio spiked which historically did wonders for Silver historically…it could outpace Gold’s prices if historyy repeatss itself. Copper is hanging on for dear life at 2.50 area..stay tuned the metals could be ready for changes as nearby Vol of Gold options versus the back months is huge.
Most grains & softs still meandering and we feel the planting and growing season ahead may hold the key for future ability to break resistance or fail.
REMEMBER there is a substantial risk of loss in short tern trading and option trading and it is not right for everyone. Consult your brokerage firm, broker, advisor to determine your own suitability. Past performance iss not necessarily indicative of future results. USE RISK CAPITAL ONLY
February 29, 2020 Review & Forecast OPINIONS & OBSERVATIONS
We are going to review our opinions this week and provide you with current views, Ok..last week the bottom fell out of the stock market and we closed out the week with a huge volume flush out…spike to 50 on the VIX and reversal on the close…..obviously the bulls are hoping 2850 will hold and reparations will begin which is possible but in this time frame where so many companies have lost faith in their ability to predict EARNINGS…valuating companies has become guesswork at best. Certainly P/E ratios that were excessive have been coming off but are S&P P/E ratios correcting from 19 to 17 sufficient? What will 2020 Growth & Earnings be? As I write this China was announced at a horrific 35.7..the worst in history. Next week Mon. USA PMI & ISM numbers Tues Fed speaks/USA Auto Sales Wed USA Service Sector #’s Thurs OPEC meets/USA Factory Orders more speaking from more Fed guys and Friday we get the US Payrolls (Jobs)
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When we broke above the 3050 area we targeted the area around 3400 S&P as a possible exhaustion area based on number of factors including the failure of the advance decline line to make a new high, the valuations being way ahead of earnings and growth, complacency in the VIX, RSI’s extended, prices of index & key stocks trading so far above their 200 day moving averages (overbought), the Transports & Russell failing to take out their 2018 highs, the dismissive attitude of supply chain interruption & the Virus, the lack of interest from readers to inquire about the uses & risks of hedging (collars-married puts-covered call) and much more. So now we look for support technically and Central Bank intervention to help guide us thru this Katrina like event. Our opinion is we have no idea how this will play out but hope it is just a Q! & Q2 tragedy. We have ranges we hope will hold and they are 2850…then 2700-2600…then the lows of Q4 of 2018 2350. If you believe that extremely low interest rates will bring TINA back…will encourage consumer spending (a new generation of household creators)….a refinance boom and lower gas prices (more cash for consumers to spend)..more Federal spending (stimulative deficits)….5G …the cloud-edge computing still coming….then a buy plan to phase into the decline or wait until we see an S&P monthly low surrounded by higher lows to enter could make a lot of sense…..VIX (fear gage) hit 50 last week which historically has been a stretch point (during the crash times it hit 90)….on our radar is VYM & SCHD which provides diversification and dividend income and of course discounted high flyers MSFT AAPL GOOG AMZN and the semiconductors & the health care sectors could be worth a look. Energy is so out of favor and dividend yields are so juicy…iss XLE, XOM, COP, HAL,SLB, CVX, worth a look? Remember Baruch & the “Buy Your Straw Hats in the Wintertime”
OK…the phrase here is how low can you go..think about it…we’re at the point where we should have Federal Budget Surpluses but we’re running huge budget DEFICITS….so how can we finance them…how about we get rates toward zero….the Fed may cut but I’d bet they know they need to inject liquidity (balance sheet expansion right now)……the last time we had a panic into Treasuries the yield went to 1.4% and snapped back to 2%…..when we get clarity or a break in the action…one view is you will be left with easy access to consumer loans…pent up demand…a supply chain that could cause scarcity & higher prices….a huge snap back in growth and rates near zero on 2-10 year paper….if all these profits that huge amounts of bond players are sitting on want to actualize (sell)…who’s going to buy (maybe the Fed?)…we are now seeing what happens ( in stocks) when a hugely populated bulls party ends with the scream of FIRE! Liquidity is an issue as ORDER IMBALANCES expose inefficiencies in the financial system. If you’re in enjoy the ride and the yields you locked in but we said the trend is UP on TLT for a long while now but the 200 day average is in area 138 and we trade 155….a move between say here to 165 could be a time to fade.
We’ve been talking trading range here for more than a year and recently we peeked out above 9950 DXY…but 100 is the real Wall….and the about face from that area reinforces that belief…..if we close above 100 the risk of a melt up exist (98 area now)…otherwise our opinion is Fed printing & huge budget deficits..Admin desire for weaker dollar..makes south bound logical. Yen Pound Euro ect…..all paper currencies look a bit questionable currently.
OPEC meets this week and as we warned you after the big guys (Saudis) ran the prices to 66 bucks a barrel so they could sell the ARAMCO deal prices could slide back down and a break under 50 could send us sliding if OPEC can’t get uniformity in reducing supply (also said Jan gets a lot of pension buying in stocks & maybe stocks will do like oil after all those monies are in) So Now…let’s see if 40 bucks can hold and if the Saudis can get cooperation on cuts…the oil stocks have gotten so far under their 200 day moving averages & their yields have gotten so high that either they are becoming a Good Buy or they will become a Bye-Bye….electric cars coming…gas is here.Watch RDS.A BP XOM CVX SLB HAL VLO KDI and many more for clues
Gold Silver Copper
We have been all over Gold since it broke 1350 and we told you of Tudor Jones forecast of 1700 per oz…after the move to 1600 we told you of overbought conditions and a possible pull back to 1450-1400 area and a renewed move to the target 1700…we told you of GDX above 17 and 22 and resistance around 30….so now we are pulling back the short term excesses in both Gold & Silver (weaker because of industrial demand stumble)…..what now…we test support 1550-1575 then 1500-1450 and long term averages point to 1375-1400 worst case if we are to remain bullish…if you believe higher prices are ahead because of easy credit..huge deficit spending and a Fed who dreams of inflation & an administration who craves a weaker dollar and worldwide insanity on monetary policy..the obviously you’d see bargains on the dips and plan accordingly.
Grains & other
Here comes more subsidies (not socialism of course because it comes with votes)…and the demand side is on it’s ear…watch for planting & growing news to increase volatility…..tough times sometimes don’t last forever
REMEMBER There is a substantial risk of loss in option trading and short term trading and it is not right for everyone. Consult your brokerage firm, broker, advisor to determine your own suitability.. Past performance is not necessarily indicative of future results. USE RISK CAPITAL ONLY.