Monday Market Movement - G20 Drops the Ball Once Again

Well, it's not like we didn't expect it.

Sadly, after a 3-day meeting of the World's top Financial Ministers in Shanghai, markets are opening weak after only vague commitments to spur growth came out of the meeting.  Chinese stocks, which desperately need a boost, fell below the critical 2,700 line on the Shanghai this morning but were pumped back to 2,687 into the close - still in a precarious position.  

Warrent Buffett and I agree that the US economy is on the mend, held down by the doom and gloom speeches on the economy - mainly coming from the GOP but also from Bernie, who brings to mind Neil Young's lyrics about being a Top 1%'er with an actual conscience:

 There's a warnin' sign on the road ahead

There's a lot of people sayin' we'd be better off dead

Don't feel like Satan, but I am to them

So I try to forget it, any way I can.

Speaking of rockin' in the free world, Chinese property developer, Ren Zhiqiang woke up this morning to find all of his social media accounts closed (he had 37M followers) after criticizing President Xi's campaign to tighten state control of the media.  "Internet users had reported that Ren Zhiqiang’s account was continuously publishing illegal information, and the impact was vile," said Jiang Jun, the regulator’s spokesman. "All online platforms should refuse to provide channels for illegal speech."  

Donald Trump is calling for changing the constitution to reign in the press in our country and, as Lincoln said: "America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves."  The Beastie Boys warned us we had to fight for our right to party back in 1986 and we didn't listen and now you have to be 21 just to have a drink and you can't even get a contact high at a concert anymore - how far are we willing to let freedom of the press slip because we're not willing to fight for it?

Sadly, the majority of Americans, rather than being outraged by the FBI's attemept to force Apple (AAPL) to hack phone accounts (yes, it's a dead terrorist but the Constitution doesn't say "except" it says "ALL"), which is essentially one giant leap towards state control of our personal communications.

What the FBI is asking for is for AAPL to create a flaw in their security, a "back-door" that can be used in "emergencies" to give the Government easy access to your phone.  As a child of the 60s, I can't even imagine how people are OK with this but it seems that most people are - even after the Snowden revelations about how quickly a "little" surveillance turns into, well China! 

I know, you are thinking "I'm a good person, I have nothing to hide" but Ren Zhaiqiang had nothing to hide either - except his opinion.  The newspapers and reporters Donald Trump wants to sue also have only their opinions to hide and, even if you agree with Trump, what if Bernie Sanders (the anti-Trump) gets elected and YOUR opinions are suddenly out of favor?  When you don't have absolute freedom for all and strongly protect the rights of minorities, you inadvertently create a situation in which the ruling party fears losing power (and freedom) so, historically, they clamp down on the opposition and all forms of dissent and then you have tyranny - even if you do wrap it in the American flag!  

“If China [today] demanded that Apple put in a backdoor, Apple would say no,” says Nate Cardozo of the Electronic Frontier Foundation, adding that the company could threaten to pull its products from the market, creating a public relations nightmare for the Chinese government. “That equation changes once Apple accedes to an FBI order. If the FBI can compel Apple to do it, and it’s publicly known that Apple has given the FBI this key, then China has a very different calculus … The PR around a Chinese demand gets a lot better for China, and a whole hell of a lot worse for Apple.”

A recent Pew Research poll found that 51 percent of Americans think Apple “Should unlock the iPhone to assist the ongoing FBI investigation,” while 38 percent say Apple should not. (The rest had no opinion.) Even the survey itself shows how effective the FBI’s messaging has been. Apple is not being asked to unlock an iPhone; it’s being asked to create software that would help the FBI unlock it. After which, there’s every reason to expect Apple and every other tech company will be asked to create more software that could be used to diminish even more civil liberties.

Anyway, we report, you decide.  As to the markets, we still have plenty of fun earnings this week and a much better idea of how sectors are performing so we'll be looking for opportunities to makes some quick money on earnings trades.  Lumber Liquidators (LL) at $11 is a big one for us today as we doubled down our position as they bottomed out and we HOPE this will be the bottom for them with an upward trajectory back over $15 once this certainly awful report is absorbed and we'll likely be adding more shares on the dip.  

Taser (TASR) is our Stock of the Decade with a $50 target in 2020 and we love them down here at $17.50.  A fun way to play earnings is to sell the March $17 puts for $1 for a net $16 entry and we can buy the Jan $15 calls for $4.90 and sell the Jan $20 calls for $2.65 so the net on the spread is $2.25 less the $1 for the short puts is $1.25 on the $5 spread that's $2.50 in the money to start.  Worst case is you end up owning TASR for net $18.25 - a risk we take in exchange for the strong upside leverage.  

We already have a lot of TASR in our portfolios - that's just the way we'd play the earnings based on where it is today.  In our Options Opportunity Portfolio, we already have 10 short Jan $15 puts we sold for $2,400 vs 20 2018 $13/20 bull call spreads at net $5,200 so $2,800 net cash outlay with an upside potential of $14,000 if TASR is over $20 in Jan 2018.  This morning we'll see whether we're on track or not for our $11,200 gain. 

Economically, we have a busy week with Chicago PMI this morning just after the bell followed by the Dallas Fed at 10:30 with Pending Home Sales in between.  PMI and ISM tomorrow, Chain Store Sales Thursday along with PMI, Productivity and Consumer Comfort and, of course NFP on Friday so we'll see if Buffett and I are right or if America is in the doldrums along with the rest of the World.

Remember, Monday's are meaningless and we're certainly glad we have our hedges from Friday, especially after reading this scathing report on Russell 2000 valuations as well as this one on S&P accounting tricks.  Be careful out there!