Mexico's tariffs, a black swan? Zuora Trading: Market Recognition

Given the title. It must have been a joke. I thought about it. Expect. Are we not trying to get the USMCA (aka NAFTA 2) to ratify here this summer? Did not it seem that progress had been made on the Canadian side? The reaction in the futures markets of US stock indexes has revealed the truth. This was not a joke. Asian markets and European markets would stumble. Short weeks are always long, they say? It has just taken longer.

Using Twitter as a means of news broadcasting, President Trump announced the escalation of the trade war … with Mexico. On June 10, the United States will impose a 5% tariff on all imports (as in all things stinking) from Mexico. This tax on cross-border trade will increase by 5% every month thereafter, the first of the month, to reach 25% on October 1st. Of course, this is related to the crisis on the southern border of the United States and if Mexico, in the opinion of the Trump government, would take effective measures to reduce the migration of illegal aliens across this border, these rights customs duties would be abolished.

By the way, Mexico is the second largest trading partner of the United States. It exported $ 346 billion worth of goods across the border in 2018. Mexico is the number one agricultural commodity. The prices of your food (not just food) are about to skyrocket. Oh, and the US Trade Representative, Robert Lighthizer, has sent US Congressional leaders the letter needed to open the USMCA ratification process. The goal would have been to conclude this agreement before the summer holidays. Yes, Congress goes to the summer holidays, much like what we did before growing up.

Black Swan? This ushers in a new era, a time when the President is willing to use tariffs for non-commercial purposes. This could potentially disengage a multitude of partners on many fronts. Could be a real doozy. At some point, the branch breaks. Investors should monitor the areas around the 200-day ADM and / or the 40-week ADS for the S & P 500 (2775, 2769) and Nasdaq (7552, 7496) indices. These are the most important large capitalization indices and they have found recent support at these levels. This morning we can look at these levels. If they can not be resumed, our twelfth-century Italian mathematician friend would ask us to look at SPX 2720, then 2650. Please, do not make me look below for help from 2650.

The small capitals and transports that have long made these weapons concentrated on lines in the sand and can expect to see a further acceleration of these declines, these actions likely to further slow down economic growth.

My thoughts on the further deterioration of the trade situation? I can see completely where the stance against China came from. At least there has long been evidence of anti-competitive and even abusive trade practices. I think that no human being can deny the crisis on the southern border. The problem is that a large part of the illegal flow is not of Mexican origin, which is also a problem in Mexico. Due to the environment created by the former NAFTA agreement, many US companies, including small US companies, are being created to take advantage of the existence of a North Free Trade bloc. -American. domestic option where these small business owners can turn. It would probably have been extremely useful to telegraph such a measure well before its implementation. This one is going to hurt, gang. Swans are graceful creatures. This will graciously place a minus sign in front of your P / L.

Kind of makes me wonder

What is the administration trying to force here? On the other hand, I mean the obvious reason for making progress in slowing down the illicit trafficking of human beings, drugs and potential terror at the border? Is this an attempt to force the Fed to act? Force inflation at the level of consumers, itself? We have often written about the yield curve of US Treasury securities. It's absolutely scary this morning. The 30-day T-Bill now yields 26 basis points more than the seven-year note, 17 basis points more than the 10-year-old (now yielding less than 2.16%) and incredibly just 27 basis points less than the 30-year bond. Let me clarify this last point. Lending to the Treasury Department your hard-earned dough for 29 years and an additional 11 months will give the investor an incredible 2.6%, compared to over 2.33% for 30-day paper. I have warned time and time again that the Fed and the Treasury needed to repair the yield curve. They did not listen to this message. Now, because of their negligence on this point, the masses will suffer.

Since Thursday (yesterday), the likelihood of a reduction in the federal funds rate (calculated using standardized futures in Chicago) rose from 10% to 20% at the June 19 meeting. One has to wonder if this is really the intention here. According to these same futures contracts, there is now a probability of at least a lowering of rates this year by 91%, two rate cuts of 60% and a 24% chance that there will be three rate cuts. A market has even been opened for a possibility of four. The governor of the US Federal Reserve, Richard Clarida, spoke Thursday in New York. Basically, Clarida finished her speech without making headlines, and then during the question and answer session, he sort of let go. The senior central banker admitted that the Fed was "very sensitive" to risks to the economy and domestic inflation. He also admitted that there might be a reason for a more accommodating policy in monetary policy.

The GDPNow model of the Atlanta Fed has been a reasonably accurate model of economic growth in recent quarters. Much more accurate than the competitors in my opinion. This morning, the Bureau of Economic Analysis will release its April data on personal income and expenditure, as well as extensive data on the PCE. The GDPNow snapshot is now at 1.3%, but Atlanta has not revised this picture since last Friday. They will surely do it this morning. Personal expenses slowing down from March are not going to help here. Central Bankers will follow the year-by-year impression of Core PCE. This line runs at 1.6% and is currently expected to remain.

The Treasury could help, even if the Fed is slow to reduce rates in the short term, by over-issuing both loans at 10 and 30 years while yields are depressed. As perverse as it is, and I understand it, the time has come to seriously consider a 50 or even 100-year show. The problem is that such behavior would only allow even more irresponsible behavior on the part of decision makers, especially if it were going well. Must be considered through, in my opinion. Too late to buy gold? Probably not.

S Address Zuora

I was in conference call when Zuora (ZUO) announced its financial results for the first quarter. EPS of $ -0.11, enough for a pound of a penny. Revenues of $ 64.11 million (+ 22.2% yoy) meeting expectations. D & # 39; agreement. I thought, while I was trying to continue my call from the back of a car and work with the other hand … maybe everything will be fine . Markets have been quick to point out that this would not be the case. Yes, I am long ZUO. Yes, I named this action my choice 2019 for the year, and this action broke the market a few weeks ago. The pleasure stops there. This name, for me, especially in this risk-free environment, goes from my list of "hot tickets" … to what it will be for the moment … a project of risk management.

As supporters know, I often work to reduce my net base between my long positions by selling options at levels I think I can add, as well as calls that I hope will not be exercised against my position. These options expire. I keep the dough. My net base is reduced. That's the plan. In Zuora's case, the plan had worked well so far. I had driven my net base over time, below the $ 15 level. The level of $ 15 had been my point of panic. More about this in a bit.

Although stocks are down nearly 30% from Thursday's close, there are some positives. Subscription revenues increased 32% from the previous year to $ 47.3 billion. Customers with an annual contract value equal to or greater than $ 100,000 increased by 24% over the previous year to a total of 546. The main negative revenue would be a fairly important indicator of full-year revenue projections, ranging from $ 268 million to $ 278 million. The Wall Street consensus had been close to $ 292 million. The company attributes the lack of effective execution of new recruits in sales. This sounds awful, but the firm is taking proactive steps to address this gap. It is interesting to note that EPS for the entire year should always be between $ 0.40 and $ 0.44. The street is looking for – $ 0.42, so now a real benchmark, which means that the CEO, Tien Tzuo, must expect a margin expansion later in the year. The company also did not reduce, but slightly improved its cash flow expectations for the year.

In summary, it would appear that the reduction of approximately $ 20 million in revenue forecast for the full year has cost the company approximately $ 660 million in market capitalization. Unless markets see something that I miss completely, this sale is an overreaction to this news. So, how do I react, being my skin is in this game?

A good pickle

Firstly, I come a long time on equity on a now disadvantageous bet basis. Secondly, I am missing some put options worth $ 17.50 that will expire this afternoon. Obviously, I must either buy them at a loss or buy the shares at this strike price. Whatever the case may be, my net base is pointing north under a name heading south on a market that does not help. My point of panic was $ 15. My two rules are that I always respect panic points and that I always try to limit losses to 8% unless they happen overnight. On a market value basis, this is a serious negative, as my account already reflects. In terms of real wind and losses, which was a 10% gain on Thursday, looks like a 6% hickey Friday, still less than my 8% rule, if I can properly handle those put options. Fortunately, I also arrive on $ 22.50 calls and on $ 25 calls that also expire today. This helps as these will expire worthless, providing 100% profit each individually.

For those who are not as entrenched in options trading, you will obviously have a problem here this morning. I do not worry about myself because I am quite sophisticated and consider myself a risk manager. For you, I am deeply sorry to have brought you here. I've made the call, I still think that the cloud and the subscription economy are paramount for the economic future of the still young generation we see before us. I also like Tien Tzuo. I think it's a serious leader with a good idea. I will be slow selling shares on this discount. In fact, I do not sell any stock to be honest. I will have to manage these options, so I will probably add at least some of these actions to what seemed like an attractive reduction. I will almost certainly guarantee that I will sell both put options and purchase options today with expiration dates of at least three months if the premium is there. This may not be the case, especially on the call side, which is the safest side for the longs, they keep the size of this position correlated to the number of actions of the participation.

It's Friday

They will come to get us today, gang. They will try to hurt us. They will try to beat us. They will never defeat us. They can not defeat us. For those who know us, know that we are the wrong door to hit. We do not know fear, fear is, but only for the bad guy. Our hearts are pure. Now fight. Fights as I've learned. Fights at my side. God protects you.

Economy (Every hour is)

08:30 – Personal income (April): Expects 0.3% m / m, last 0.1% m / m.

08:30 – Consumer spending (April): Expects 0.2% m / m, 0.9% last m / m.

08:30 – PCE Price Index (April): Waiting at 1.6% y / y, Last 1.5% y / y.

08:30 – CPE Price Base Index (April): Waiting at 1.6% y / y, Last 1.6% y / y.

09.15 – President of the Fed: Atlanta Near. Fed. Raphael Bostic.

9:45 am – Chicago PMI (March): Waiting at 54.2, last 52.6.

10:00 – Feeling of the consumer of the U of M (March-F): Flashed 102.4.

12:00 pm – President of the Fed: New York Near. Fed. John Williams.

1:00 pm – Minutes from Baker Hughes Rig (weekly): 797 last.

Highlights of Today's Earnings (EPS consensus expectations)

Before opening: (BIG) (.70), (GCO) (.03)