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Although we don’t how Apple’s stock will react to Thursday’s earnings report, it should be entertaining.  Apple missed earnings in large degree because it’s new i-Phone X is not selling as rapidly as had been expected.  And why is that?  The price is just too high.

ZeroHedge had a good write up on AAPL. The full article can be read here: https://www.zerohedge.com/news/2018-02-01/apple-confirms-iphone-x-woes-iphone-sales-drop-miss-guidance-surprisingly-weak

Apple reported Q1 EPS of $3.89 and revenue of $88.3b, up 13% Y/Y, both beating expectations of $3.84 and $87.3bn, and above the company’s own forecast range of $84-$87 billion, even if gross margin was in line, printing at 38.4% vs 38.4% expected, despite a record iPhone ASP of $796, far above the $767 expected.

That’s the good news: the bad news was that Apple reported Q1 iPhone sales of 77.3 million, which was not only a drop from the 78.3 million iPhones sold last year, but bigly missed expectations of 80.2 billion.

Still, thank to the sharply higher average selling price due to the iPhone X, Apple still managed to post record results, even with 1.3% fewers iPhone sold. Smartphone revenue rose 13% Y/Y to a record $61.58 billion due to the higher average price, even as total iPhone sales declined.

Less relevant, iPad revenue gained 6% to $5.9b, after the company released new models in the middle of the year. Meanwhile, Mac sales fell 5% to $6.9b, even though Apple released new Macbook Pros over the summer. Apple had released new Macbook Pros just before Christmas 2016.

But what everyone’s attention was focused on, was Apple’s forecast for the next, Q2 quarter, in which Apple sees revenue of only 60-$62Bn, well below Wall Street estimates of $65.9 billion, on gross margin of 38-38.5%, below the 39% consensus estimate.

The full forecast in a nutshell:

 

  • revenue between $60 billion and $62 billion
  • gross margin between 38 percent and 38.5 percent
  • operating expenses between $7.6 billion and $7.7 billion
  • other income/(expense) of $300 million
  • tax rate of approximately 15 percent

 

As Bloomberg confirms, it’s was a big miss for Apple on the outlook, with the high end of its range almost $4b short of analysts expectations. That confirms investors’ worst fears that the strength of demand for the iPhone X won’t be sustained into the second fiscal quarter. Samsung releases the new Galaxy S9 on Feb 25.

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Wednesday was not just another day in the markets.  It wasn’t just another Wednesday.  The FOMC 2-day meeting was ending, which always makes it a special day.  Wednesday, however, was also Janet Yellen’s last formal day as the head of the Fed and the business end of the Fed: the FOMC.

Well, a (very) old friend of the Fed felt it was necessary to make a comment.  That friend was Alan Greenspan (yes, he never goes away) who felt obliged to say that the stock and bond markets were BOTH in a bubble, and that the bond bubble would be a much larger problem. Mr. Greenspan is quite correct on this score: the bond bubble is a MUCH BIGGER PROBLEM than a stock bubble is now..or ever could be.

Mr. Greenspan said many things on Bloomberg TV today, but when he said the following… markets moved.  The old’boy still has some swag, because when he said the following…markets tanked.

“There are two bubbles. We have a stock market bubble and a bond market bubble. At the end of the day, the bond bubble will be the big issue.”

That’s not much of a statement..so it sure shows how much the market is really on pins & needles when it’s not being driven straight up by a central bank!

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Bitcoin and other cryptocurrencies slumped sharply yesterday as US federal regulators continued to crack down on companies in the marketplace. While the SEC’s freezing of a $600 million cryptocurrency product launch was highly important, the biggest story was that the CFTC had subpoenaed the cryptocurrency exchange Bitfinex and its affiliate Tether Limited as early as December 2017. Together the two companies are likely to have engaged in fraudulent activities designed to inflate the price of Bitcoin and other cryptocurrencies.

Specifically, it has been alleged for at least a year by critics of the two companies that the two companies are run by the same management staff and use the entity Tether Limited to create artificial USD in the form a of cryptocurrency whose symbol is USDT. USDT is claimed by Tether to be fully backed in a ratio of 1:1 by actual USD cash held in a bank account, by the company has repeatedly failed to provide proof via professional auditing of its alleged reserves. Since USDT is used by the majority of the largest cryptocurrency exchanges as a digital substitute for USD, where clients often receive USDT tokens in exchange for their cash deposits, it becomes clear that the entire cryptocurrency marketplace is exposed to enormous counterparty risk.

If the CFTC or other regulators move to block investors from using USDT for trading of of cryptocurrencies, then this would require holders to immediately buy other cryptocurrencies in order to then transfer them to an exchange that denominates cryptocurrencies in USD cash only rather than in USDT. Ultimately, it seems that CFTC would only approach these companies on strong evidence that fraud has likely occurred. Currently, the are over 2.2 Billion USDT tokens in circulation, thus yielding an alleged equivalent of $2.2 Billion in buying power that has been deployed over the last year to purchase Bitcoin and other cryptocurrencies.

Since cryptocurrency market caps are based upon the relatively small proportion of available tokens that are being actively traded at the major cryptocurrency exchanges and widespread adoption of these digital assets by venders is greatly lacking, it is unlikely that the cryptocurrency marketplace has actually since a level of capital inflows as great as the over $400 billion market cap that is currently the running estimate by most commentators. It seems more likely that the actual inflows are much smaller, particularly given the actual ratio of USD cash to USDT tokens is probably much smaller than the 1:1 ratio claimed by Tether Limited.

Ultimately, we will see how the markets continue to react to this news and what will be the next move by regulators, but we can clearly expect by now that the outcome will not be positive overall. Expect more downward pressure and volatility for cryptocurrencies until this matter is resolved.

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It seems the markets are beginning to show signs of exhaustion after consistently running to newer and newer all time highs since the 2016 election. The S&P 500 lost -0.7% yesterday as energies and utilities stocks slid. But the biggest takeaway here is this: we were down ONLY -0.7%! This clearly is not a large amount when compared to typical declines or rallies we would regularly see only a few years ago, but as some traders have pointed out, the S&P’s value is so far above where is was only a few years ago that a relatively small percentage move is still worth a lot.

Perhaps this is a fair argument, but overall volatility has clearly been in a slump since the election. With the exception of election night itself, we have consistently seen the VIX slump ever lower. Clearly we are overdue for a significant spike, but the requisite catalysts seem harder and harder to come by. Overall, global markets appear to be quite confident in the future, even though the “Doomsday Clock” has now reportedly reached 2 minutes to midnight. Even Bitcoin has slumped into a relatively narrow range, apparently constrained by the mutual impact of added regulation and increased skepticism on the actions of some of its biggest exchanges, such as Bitfinex. Going forwards, it seems that the indexes will face stronger headwinds as the effects of the new US tax bill and the ultimate resolution of the next potential government shutdown weigh in.

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The singer known as “50-cent” is surely not the person in question; however, whoever is making the following trades is being called the “50-cent” trader.  When volatility is low, this trader places huge call bets on the VIX expecting a huge upside move.

Bloomberg reports: Trading patterns associated with the trader dubbed “50 Cent” resurfaced on Friday as 50,000 March VIX calls with a strike price of 24 were purchased for 49 cents a pop.

“I think for a while ‘50 Cent’ became ‘30 Cent,’” said Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors. “There were a lot of prints that fit that bill, though you can never know if it’s the same person.”

50 Cent’s role as the most interesting — and largest — player in VIX options has largely been usurped by the so-called “VIX Elephant” who’s been putting on massive call spread trades since July.

This person or company just bought 50,000 calls!  They’re expecting a great deal of volatility in the markets, which almost always happens when the stock market falls. If he’s correct, the trade will be worth many millions of dollars.

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Over the last two days the market has been more volatile than normal, at least in the early portion of the day.  In the morning there are economic data released from the government that may affect the market, but the data hasn’t been skewed enough to make much of a difference recently.  Until today.

When the new home sales data were released, the markets fell very quickly.  Despite what Econoday reported below, it wasn’t a great data point…

The headline 9.3 percent decline in new home sales for December masks what is actually a solid new home sales report. December’s 625,000 annualized rate is the fourth best of the expansion and follows November’s revised 689,000 rate which is the very best. And importantly supply moved into the market, up 3.9 percent at 295,000 units. On a sales basis, supply improved to 5.7 months from November’s 4.9 months.

Prices were steady in the month with the median edging up 0.1 percent to $335,400 for, however, very modest year-on-year improvement of only 2.6 percent. But prices may have room to move higher given that the sales rate is up 14.1 percent on the year with supply up 15.2 percent.

The downward revisions in today’s report are significant, totaling 69,000 going back to October but this is really no surprise given how volatile this report always is. But the bottom line is upward sales momentum, incoming supply and room for prices to move higher. Residential investment has been dragging down GDP in recent quarters but today’s report points to a solid contribution for tomorrow’s fourth-quarter report.

Let’s hope the week ends as well as the last few days started – volatile!

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Something odd happened in the stock market today.  After the S&P500 (ES) made yet another new all-time high, and the Nasdaq futures made new all-time highs and traded north of 7,000.00 for the first time in history, the markets fell hard for 2.5 hours.  But don’t worry, the ES was able to claw its way back to close with a small gain.

What caused the 30-POINT reversal?  The US dollar had been weak for some time and was ignored by the markets; however, once the Nasdaq traded above 7,000.00 it just couldn’t be ignored any longer.  Profit takers came in and sold the new highs.

CNBC reported the following:  Mnuchin made the comment in Davos, Switzerland Wednesday morning to news reporters attending the World Economic Forum. The dollar index, reflecting the dollar’s value against a basket of currencies, tumbled 1 percent to about 89.25.

Mnuchin’s comments echo statements by President Donald Trump, who famously helped turn a market trend of a stronger dollar last January when he said, prior to his inauguration, that the dollar was “too strong” and that U.S. companies can’t compete because of it, particularly against the Chinese. The dollar index has lost more than 10 percent since then, and after Mnuchin’s comment Wednesday morning, it sank to the lowest level since December 2014.

Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters, according to Bloomberg, adding that the currency’s short-term value is “not a concern of ours at all.” Mnuchin speaks on a panel in Davos Wednesday morning, at 11 a.m. CET.

Steve Mnuchin will speak at a forum in Davos early Thursday, so we’ll see if he clarifies the comment above.  If this leads to greater volatility, that would be a good thing for all traders.

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Bitcoin prices are continuing to slump in January after peaking at nearly $20K per share in December. Many of the most vocal cryptocurrency enthusiast would were regularly featured on major financial news outlets like CNBC have become markedly quite in making further predictions for 2018, although this is mostly due to networks seeking to get comments from other voices who sound a bit more reserved. In any case, what is clear is that prices have retraced more than 50% below the January highs as the lowest point reached so far this month, and currently prices are hovering between $10K to $13K per Bitcoin, but with a noticeable tendency to veer towards the lower end of this range.

Multiple factors are weighing on the world’s best known and biggest cryptocurrency, as well as the entire cryptocurrency marketplace. One of these is the continuing intensification of government actions to curb speculation in these relatively new financial products. The government of South Korea decided this week to ban trading in cryptocurrencies by entities with anonymous bank accounts, thus taking away one of the most desirable qualities of cryptocurrency trading. Meanwhile the Chinese government continues to pressure Bitcoin mining companies, often appealing to concerns about power usage and potential money laundering. China banned cryptocurrency exchanges late last year, and therefore it is clear that they are moving in the direction of more regulation. And in other parts of the world such as India and the United States, we are seeing similar regulatory movements to intervene in the cryptocurrency marketplace. Add to this the collapse of the Bitconnect exchange, and we have enough uncertainty to dampen enthusiasm for cryptocurrencies for at least this month.

Ultimately, we will see how investors and speculators will respond to these developments. However, what is now abundantly clear is that those who thought that somehow Bitcoin and similar products would replace the established financial system were definitely not seeing the world realistically. We can expect more government intervention into cryptocurrencies going forwards, and ultimately this will dictate the future of these financial products. We’ll continue to update you as these things continue to develop.

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Congress has managed to keep the power on for the government for another two and a half weeks. While we expected that the shutdown would last at least a week, a temporary deal was reached keeping the government funded until February 8th, whereupon the next round of decisions will be made…or possibly not made.

At this point, it still seems clear that it will take some time for a final deal to be made. Many activists groups expressed great disappointment with the DNC over their move to temporarily end the shutdown. Again, as we mentioned yesterday, the focus of the media and the activists is on immigration, with DACA being pushed into the spotlight. With the DNC seeking to appease the desires of the more extreme wings of left-wing activists, that is those who support fully open border policies and wide expansion of government-funded services overall, while simultaneously appealing to middle class voters, it seems like a long shot for the DNC to be able to find a solution that appeals to both sides. Meanwhile, the RNC runs the risk of disillusioning its recent voters by caving in on the demands of advocates of open borders and expansion of government social programs.

Clearly, this will not be resolved quickly, but exactly how long it will take now only seems to come down to which party decides it has more to lose by holding out. The markets responded favorably to the resumption of government services, but it is likely the initial enthusiasm we saw will not carry over for very long. We can expect the markets to respond quickly to any hints of positive news, but caution is advised going forward. We’ll keep an eye on negotiations for signs of a breakthrough.

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We are now at the 3rd day of the US government shutdown. As of 12AM Eastern Time Saturday, the US government has failed to agree on a budget plan. Of course in reality, the main issue isn’t simply how MUCH will be spent, but rather what programs and agendas will be forwarded. Each party and factions within each party has expressed their particular concerns and forwarded their preferred legislation, but so far no agreement has been reached, with the most televised issue being that of immigration with the DACA program being the centerpiece.

The financial markets have so far responded fairly modestly to the news. This is not surprising, given that traders already anticipated this outcome. In fact, with the midterms being so close and the DNC looking to regain control of Congress, it is not surprising that we are seeing such a strong push on wedge issues such as immigration. In addition, given the RNC’s big win on tax reform last year, it is clear that strategically creating a delay in the implementation of the new tax laws should dampen the momentum that Republicans are likely to get as a result of US taxpayers footing a smaller tax bill overall this season.

Ultimately, we can expect this shutdown to last at least another week, even a few more weeks based upon developments over the weekend. The Senate is scheduled to vote to end the shutdown on Monday at noon, but it seems unlikely to expect a swift resolution given the degree of partisan bias we’ve seen in Congress since the 2016 election and also during the Obama administration. With these things in mind, we can expect the markets to be on edge but subdued until clear progress is made.

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