This is too funny.
They can't get anyone on the actual Fed to call for a rate cut so they bring back Ex-Fed Governor Kevin Warsh to call for an "IMMEDIATE GLOBAL RATE CUT" and, if that isn't enough, CNBC interviews him and Joe says "You know there are rumors you are going to be the next Fed Chairman." We've been through this dance before – no matter how much Donald Trump wants to put "his guy" on the Fed to throw money (borrowed) at every problem (like he did with his casinos before they went bankrupt) – he doesn't have the right to force Powell to resign. It's one of the very few checks that remain on Trumps power – now that the GOP Senate has become his Yes Man.
Warsh is yet another Republican talking head from the (and you can't make this up) Hoover Institution, where most of the Fellows seem Hell-bent on repeating the mistakes that led to the Great Depression – as if Hoover is some kind of Economic hero to be revered, rather than reviled. This is the last bastion of Trickle-Down Economics in America or, as Bush the 1st liked to call it "Voo-Doo Economics" or, as Trump likes to call it "Loans from Dad".
Since 2016, Warsh has been one of Trump's economic advisers – and look where it's gotten us!
Where it's gotten Warsh, however, is married to Jane Lauder, granddaughter of Estee Lauder, who is worth $2Bn – so they do know a lot about trickling on poor people, at least…
“This thing’s moving pretty darn quickly,” Warsh said. “At the very least, a statement on Sunday night before Asian markets open would buy them a little time and let us all learn a little bit more about where things are.”
Warsh agrees with my take that the Fed doesn’t have a lot of ammunition to help markets and the economy, but he thinks that means it needs to act quickly in a coordinated fashion with other Central Banksters like the European Central Bank, the Bank of England, the People’s Bank of China and the Bank of Japan but I think they CB's only have one big save left and, if this virus continues to spread rapidly, we're heading into a Global Recession and they'd better save their ammunition for that.
Nothing would be worse than the announcement of massive stimulus and then more viral outbreaks leading people to think not even the Fed can save us – THEN you will see some panic selling! Warsh's comments have actually made things worse as it's perceived he's speaking for the Fed and that Fed is now looking ineffective – exactly the trap that the ACTUAL Fed Governors were trying to avoid falling into!
We'll see if this rumor of more Fed bailouts will do the trick but I doubt anyone is going to go into the weekend long in HOPES (not a valid investing strategy) that the Fed now has the power to wipe out viruses and fix Global Supply Chain issues. Infections are up to 83,774 this morning and deaths are 2,867 with 36,654 recovered so that means 7.8% of the outcomes are DEATH so far – a little worse than the numbers the CDC and WHO like to throw around because they divide deaths by infections – even though most of the infections are too recent to know if the patients will recover (it's been a very slow process).
Fortunately, we have some really good hedges protecting our portfolios, which began with our Jan 23rd post titled: "How We Are Hedging China's Coronavirus Crisis" where our first hedge was:
- Buy 20 FXP June $50 calls for $7 ($14,000)
- Sell 20 FXP June $65 calls for $2.50 ($5,000)
- Sell 5 FXP June $50 puts for $4.30 ($2,150)
- Sell 5 CHL Sept $45 puts for $4 ($2,000)
That was a net $4,850 spread and, so far, with the China Ultra-Short (FXP) now at $61 and CHL at $40, the $50/65 spread is $12.25/5.25 for net $7 ($14,000) and the short $50 puts are $2 ($1,000) and the CHL puts are $6 ($3,000) for net $10,000 – that's up $5,150 (106%) in the first month and it's a $30,000 spread so another $20,000 still to be gained if all goes well – that's a nice hedge!
Since that spread can still return $30,000 on $10,000 – it's still a good hedge to protect us from a further downturn and it makes sense to stick with FXP as China is the epicenter of the outbreak (for now) and their economy is likely to be seriously impacted through Q2 (June).
I still love China Mobile (CHL) as a long-term hold but now there are a lot of US companies on sale as well but we'll stick with CHL for now and set up a new FXP hedge as follows:
- Buy 30 FXP June $55 calls for $9 ($27,000)
- Sell 30 FXP June $65 calls for $5.25 ($15,750)
- Sell 5 FXP June $55 puts for $3.50 ($1,750)
- Sell 10 CHL Sept $42.50 puts for $4 ($4,000)
We got a better price on CHL so we're selling more and our net entry on this $30,000 spread is $5,500 and the spread is $15,000 in the money to start so not too bad with a potential gain of $24,500 (445%). The risk is being assigned 1,000 shares of CHL at $42.50 ($42,500) and those are already down $2,500 but we can roll them along and CHL is probably not going to disappear with their 900M customers any time soon.
Our other primary hedges are the long Nasdaq Ultra Shorts (SQQQ), and we also shorted Tesla (TSLA) and Chipotle (CMG) as well as our Trade of the Year, which was a long on Barrick Gold (GOLD) and that, of course, is working out fantastically for our readers (you're welcome!).
We'll be adding some more as the day goes on so stay tuned.
Have a great weekend,
– Phil
