Rockin' and Rollin'
There are many different ways to slice and dice economic data. In fact, it may be possible to support just about any trend or trade idea that folks end up looking for. One thing, though, became crystal clear yesterday. We know that there are problem spots, obvious among them would be emerging markets, Italy, and the prospects for a synchronized slowing of global, economic growth rather than synchronized growth itself. That would be away from the domestic economy. At least for now.
Early Tuesday morning, well before many of you lifted that disgusting thing you call your head away from that pillow, the National Federation of Independent Businesses (NFIB) went to the tape with their August survey of Small Business Optimism. To say that small businesses are in an aggressive spot right now would be an understatement. That is why markets turned in a northerly direction on Tuesday morning, and maintained course, by the way. Not only did the Small Business Optimism Index hit the tape at the highest level in the 45-year history of the survey, but according to the NFIB's own website, the percentage of small businesses that think this is a good time to expand matched it's all-time peak. Inventory investment plans are at 13-year highs, and finally, this is the big one: Plans for job creation and unfilled job openings both hit all-time records for the series.
Fast forward a few hours, and we saw July JOLTs data for job openings. The Labor Department releases these numbers. Not only was the June data for job openings revised from 6.662M to 6.822M, a 2.4% revision. On top of that revision, July estimates for openings came in at 6.939M, tacking on another 1.7%. At this time, according to these estimates, there are now 659K more job openings in this country than there are people looking for work.
As any first year economics student already knows, small business employment is historically a pillar of US economic strength. That would appear to ring just as true in 2018 as it always has. Bill Dunkelberg, the NFIB's Chief Economist was straightforward. He said "At the beginning of this historic run, Index gains were dominated by expectations. Now the Index is dominated by real business activity that makes GDP grow."
You finally did see some wage growth (+2.9% y/y) in the BLS Employment Report for August. I don't think it would be much of a stretch to realistically expect a lurch forward for that line-item some time this Autumn. Then does revolving credit, and a re-engagement for younger adults across the housing and autos sectors take place? The ground work has been laid.
ECB On Deck
Speaking of synchronized global growth, or the lack thereof... we'll hear from Mario Draghi and the ECB family singers tomorrow morning. We have not heard from this crew since July, and a lot has transpired since. Last that we heard from this crew, the European Central Bank had a largely positive view for eurozone-area growth, expected to wrap up their quantitative easing program by December, and had actually given thought to an interest rate increase sometime later in 2019.
What could go wrong? Well, energy prices could rise, the Turkish lira could roll off of a cliff, putting exposed European banks in a bad spot and making emerging market contagion an every day thought, the entire Italian financial system could show significant cracks in the pavement, and then there is the very real risk of a "no-deal" Brexit. Other than that, I don't see any reason why the ECB would delay plans for tighter monetary policy down the road.
Bottom line is that Draghi has enough cause to be as vague as he needs to be tomorrow. I would think that there would be enormous potential for a press conference that comes off as very dovish, and that will put upward pressure on U.S. dollar valuations as this week plays out, and the U.S. heads into a Friday just full of data -- including numbers on Retail Sales, Industrial Production and Business Inventories. All significant. The Atlanta Fed will revise third-quarter GDP expectations, currently running at 3.8%, on that day. Stay tuned.
On Monday, we spoke in this space about Apple's (AAPL) dog and pony show today from Cupertino, California. I threw a few ideas for shorting put options ahead of the event, and expiring post Q4 earnings (October 30) at you. Those trade ideas, several of which I put into play myself, are all off to a very nice start, mainly because Apple ran 2.5% yesterday. The pajama traders, by the way, have the stock higher still here in the overnight.
Yesterday's big news was the UBS target price increase from $215 to $250, and the firm's mention of Apple services. UBS thinks that segment could grow 20% per year over two years' time. Today's news is this product launch. Expectations for today will obviously include the iPhone. This product line is still the driver for roughly two-thirds of the firm's revenue, so Apple has to keep it exciting. The phone also serves as the firm's gateway to everything else.
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It's the ecosystem that UBS was referring to, and it is the ecosystem that will provide subscription style revenue streams. In turn, it will be that recurring revenue model that provides for the firm a higher market multiple... and that's what we really want to see. Apple fans don't want to hear anything on U.S./China trade relations today.
Bought The Rumor?
1) Three new iPhones with larger screens and higher price tags. For you kids that like bells and whistles, there will be plenty of that. I leave my house without my phone half of the time. As a consumer, I don't give a rat's tail. I'm just here to profit.
2) A new Apple Watch. This one will likely not have to be tethered in any way to an iPhone. I still wear a $10 plastic Casio watch with a face and moving hands for hours, minutes, and seconds. Again. I'm just here to profit.
3) A third-generation iPad. Rumors are for a faster processor, face ID and no home button. Yeah, because that home button was such a nuisance -- and face ID is so necessary. What on earth have we become? I really was born in the wrong century.
4) Potentially, there could also be an array of other launches today, including new MacBooks, new AirPods -- and perhaps finally the new AirPower charging mat. You know.. a charging mat might actually be something of interest to this old dog. Expensive wireless ear-buds? Yeah, I'll take the cheapo, wired version off of the discount rack, Thanks.
Selling The News
The fact is that markets can get pretty gnarly for Apple shareholders on days like this. The fact that the stock has rallied significantly since April, and has rallied back from last week's selloff this week, may spell out some danger ahead for this name. Those holding these shares should be fully cognizant that AAPL tends to sell off on "Launch Days". In fact, the stock, according to Investors Business Daily, has fallen on the day of the launch in eight of the past ten events for an average of -0.4%.
For the full week of such an event, still from the IBD article, Apple has declined an average of 1.8% over those same ten events. Of course, as we have all seen repeatedly, Apple's stock tends to get on track and stay on track for lengthy periods of time. My method of selling put options does provide my book with a regular infusion of cash. That much is true, but if one had just owned the shares, and stayed the course, that trader would be well ahead, particularly for 2018.
Shares of AAPL have sharply rewarded the "buy and hold" crowd this year, rising some 32.3%, while the S&P 500 has plodded along at 8%. You know what Jim says about this one... "Own it, don't trade it." He's been right.
There is some method to my madness. My time-tested set of disciplines prevents me from chasing a stock that appears to be on a constantly upward march. The same goes for Advanced Micro Devices (AMD) . I have owned both of these names. I am short multiple series of cascading puts for both. The intent is to buy equity at a discount, while providing revenue along the way. Every once in a while, a name will go on a seriously prolonged run, such as these two have -- and even a discount price becomes a significant premium to out where the original profit was taken.
This, my friends is how a trader stays in motion, while biding time. This is how a trader continues to drive some revenue while avoiding the temptation of impulse shopping. Is there risk? Yes, but well managed, less than a straight equity purchase, and much less than a straight equity purchase on margin. Bottom line, this trader is fine if the stock goes higher forcing those puts down to zero, and this trader is fine buying the shares at his discount price (less premiums realized) if forced to.
Economics (All Times Eastern)
08:30 - PPI (August): Expecting 3.2% y/y, Last 3.3% y/y.
08:30 - Core PPI (August): Expecting 2.8% y/y, Last 2.7% y/y.
09:30 - Fed Speaker: St. Louis Fed Pres. James Bullard.
10:30 - Oil Inventories (Weekly): Last -4.302M.
10:30 - Gasoline Stocks (Weekly): Last +1.845M.
13:00 - Ten Year Note Auction: $23B.
14:00 - Beige Book.