Position Updates (Issue #58.4 – July 16, 2018)

Bullseye Portfolio
Open Positions as of 07/13/18

 

Bullseye Portfolio
Closed Positions YTD

 

Position Updates

Checkpoint Software (CHKP)COVERED at -5.19% – Shares closed above my $108 stop so I covered my short. This company is so poorly positioned… three quarters of its business is still centered around installed systems, rather than cloud deployments and sales are only tracking up 1%… but shares have rallied 15% in two weeks. Sometimes I’ll stay long through a stop, but rarely will I ride a short. Shorts can run and keep running. 

NXP Semiconductors (NXPI) SOLD at +14.62% – This position was become too unpredictable given trade contentiousness so I have booked my gain… not as much as I expected but a gain nonetheless. The stock closed Friday $107.50. If Chinese regulators approve the proposed merger with Qualcomm, the transaction will close very quickly at $127.50. If they do not, or if the two companies terminate the deal as they have said they will do absent a decision by July 25, NXP will fall precipitously. As a standalone company, NXP is probably worth $120, but it could easily fall into the $70s if the deal implodes and current merger arbitrage holders dump their shares. At that point I’ll go back in as a buyer. If you still want to play for a merger, the August 120 calls trade around $2.75, which would be worth $4.75 if the deal closes ((127.50 – (120 + 2.75)).  One final point, the U.S. Commerce Department finalized its arrangement with Chinese telecom equipment provider ZTE, allowing it to resume U.S. sales. The implicit understanding had always been “give us ZTE and we’ll give you NXPI/QCOM” but the goal posts have apparently moved. Like I said, the outcome has become too difficult to predict. screen-shot-2016-09-17-at-11-27-27-am

 

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Bullseye View (Issue #43.4 – Dec 4, 2017)

Bullseye View

 

S&P 500 Index 2,642 +20.54% (1-yr chg)

Rocket Fuel: One of my early Bullseye supporters co-manages $650B for a notable U.S. insurance company, and last week on FOX Business he described tax reform as “rocket fuel” for what is already a fundamentally strong market. I whole heartedly agree, and since the basket of high effective tax rate companies is actually down 5% compared to the S&P 500 over the past month, I would add its benefits are not yet priced in. For months I have been extolling the Two Es of Earnings and Employment as an incredibly powerful tonic for stock prices. With the Senate’s passage of a tax proposal early Saturday morning, the two houses can now convene and draft a bill for the President to sign within days. Bottom Line: I believe tax reform will add 7-10% to earnings next year, and I remind you 4Q profit growth is already tracking +12%. Rocket fuel indeed.

10-yr Treasury 2.36% (vs. 2.38% 1-yr ago)

Inflation Nation. I fully expect the Fed will increase rates at next week’s meeting, as well as three times next year given the recent acceleration of GDP to 3.3%.  The 10-yr yield has fallen below 2.3% only one day since September 30, and it’s beginning to feel like a coiled spring. The economy is improving and higher yields reflect underlying growth. If you STILL haven’t locked in a 30-yr mortgage or shorted TLT in your trading account, please do so now. Time is running out. I reiterate my view the 10-year yield will rise to 3% over the next six months.

Dollar Index (DXY) 92.89 -7.20% (1-yr chg)

Still Here. The U.S. dollar has held the low to mid 90s since August, a welcome stabilization after the stunning 10% decline which began last January. With tax cuts no longer merely on the horizon but virtually underfoot, coupled with strong employment and GDP, dollar bears have little ground to stand on. Looking overseas, the world’s major currencies have yet to breach key technical levels established over the past several months. The Euro stopped rising at 1.20, the yen held at 108 and the yuan reversed from 6.50. Unless these levels are challenged in a major way, I see the Dollar Index holding steady… possibly rallying back to 100.

Gold $1,279/oz. +8.82%% (1-yr chg)

As Goes Inflation… As Goes Inflation… Gold trades steadily between $1,275 and $1,300 as the economy shows increasing signs of strength. I know what you’re thinking… Stocks are a better proxy for growth and a better hedge against inflation. Okay fine, but gold also diversifies my portfolio. I’ve been long since $1,150 and I am staying long. Recall I am also long the junior gold miners via the exchange traded fund GDXJ. I intend hold this position as well. The longer gold holds near $1,300, the less likely it is to fall.

Oil $58.36/bbl 12.93% (1-yr chg)

When Producers Start Selling… No-PEC. Ministers managed to agree on extending the current cuts of 1.8Mb/d… and oil rallied all of $2. Sorry bulls. While global demand is rising, the world is embracing clean energy with a vigor that will likely result in “peak oil” becoming a reality within a decade. It’s why Norway’s sovereign wealth fund is beginning to liquidate $35B in oil and gas holdings. It’s also why Saudi Aramco is selling stock in an IPO. When the world’s biggest producers start lining up as sellers, you need to pay attention. For me oil is a buy at $42 and a sell at $55. At $58 it’s a short. screen-shot-2016-09-17-at-11-27-27-am

 

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Bullseye View (Issue #17.4 – 11/11/16)

Bullseye View

S&P 500 Index – 2164 +5.90% YTD

The Index is expensive at 20.2x trailing earnings, but in a world of few alternatives (negative rates in Europe and Japan as well as questionable growth in China) the U.S. stands out. Trump’s election paves the way for tax reform and reduced regulation, both of which are business friendly. However, his stance on trade implies protectionist policies aimed at preserving domestic jobs. This is potentially a significant negative, since S&P 500 companies earn 70% of revenues overseas. Sector selection is key. Growth and Inflation are in, Defensives and Income are out.

10-yr Treasury -2.15%

U.S. Treasury bonds yields rose 33 basis points over the three days following the election, reflecting anticipated inflation associated with higher presumed income/spending from Trump-driven tax cuts. This is both highly presumptive and exceedingly speculative, as tax reform is many months away at the earliest. By the same token, rising wages argue inflation is already brewing. Fed Funds Futures currently peg odds of a December rate hike at 84%, a new contract high. Fed Chair Yellen has told us she wants to let the economy run hot. Bond traders (courtesy of Mr. Trump) are already doing the job for her.

Gold – $1,224/oz +15.48% YTD

Gold’s $40 decline during election week may go down as the second biggest surprise associated with November 8th. Rising inflation expectations argue for higher gold prices. The uncertainty of a Trump platform argues for higher gold prices. But investors want none of it. They are deploying capital into growth equities which should benefit from a new business friendly White House. Safe havens are not in vogue with America “open for business.” I have been negative gold and gold miners, though I already covered shorts and have no position currently. $1,200 should provide support, especially if inflation indicators accelerate.

Oil – $43.41/bbl +17.20% YTD

NOTHING has changed here… OPEC is powerless, Iran wants to regain share and U.S. shale producers are profitable down to $32-35/bbl. In short, the world is awash in oil and there is little reason to buy at the moment. I sold the favored E&P names (CXO and EOG) when oil crested near $52 and gas hit $3.30. We will have our chance to buy them back. For now, I have no E&P positions in energy. Trump is likely to be fossil fuel friendly (which will help the 200-plus stalled pipeline/infrastructure projects), but excess supply is a far more important determinant of price currently.

Copper – $2.51/lb +17.52% YTD

Copper rose a staggering 21% between Election Day and Friday morning’s early session. It marked the largest three-day move since 1986, and it was PURELY driven by emotional buying associated with the prospect of a Trump-driven infrastructure initiative. Short at your own peril, but this is not reality. In a related vain, world #1 copper producer Freeport-McMoRan Inc. (FCX) popped 25% in three days. If you want to play the short side, write calls here. The implied vols are epic. Please call to discuss specific strategies.screen-shot-2016-09-17-at-11-27-27-am