The S&P 500 reached its 3,840 target on TGT guidance last Thursday

The S&P 500 reached its 3,840 target on TGT guidance last Thursday ...

All of our Member Portfolios are mostly in CASH!!! all year long and it''s finally here. We have to make sure this is only an overshoot of the 4,000 line on the S&P 500, but not a consolidation move on the way to 3,680. That''s why we had previously assumed that the mid-range of the S&P 500 was too high, and it is possible that 3,680 would be the bottom, although this was a pre-war estimate.

Today, the market was shocked that Consumers are having trouble passing price increases along. This is squeezing their margins. Newsflash: The gas stations, restaurants, and utility companies got to them first they didn''t have anything left to give!

Secondhand, our economy was 25% STIMULUS it wasn''t real. About $4,000 each year went to our beloved consumers, account for roughly 6.66% of their total pre-tax income and about 10% of their after-tax money. That''s gone and inflation has eaten another 10% so consumers are affected.

There''s also a security issue. People were buying items for their yards and living areas last year and there''s not enough luggage and bathing suits to meet demand as people headed out for their first vacation in over two years. Consumer demand isn''t usually flip that fas and big box retailers are accustomed to seeing trends and ordering inventorie over years of change rather than months.

They''re facing significant shipping costs, rising labor costs, increasing gasoline costs to heat or cool thier huge stores, increasing interest on carried inventory, etc. and the move is unresolved, owing to a lack of ability to pass these costs along yet. Likewise, people tend to switch to cheaper shampoos, etc. and this leaves Retailers "stuck" with items they can no longer afford.

Big Data will save Big Box Retailers they will take a hit and discount Biolage and Paul Mitchell to clear the shelves and order more L''Oreal, etc. it''s just going to take them a quarter or two to adjust. One thing I know from 150 years of Retail Trends the stores will adjust and they will find a mix of services that fits the store''s margin objectives. Not the Retail Stores themselves.

AMZN has a similar problem on its retail side, and because their retail business did not make money anyway, it''s cloud services that drive their earnings. COST has to make adjustments, which is under $200 billion in market cap but guess what they only earn $6 billion a year, so it''s still 33x earnings.

Do you know what the right multiple for a retailer is? 15x that would be HALF of where they are now but COST is a fantastic grower so let''s get it 20x at $120 billion which is 35% below where we are today and that''s $278 and guess what? If you want to know if the stock you are watching has dropped check the 2019 levels and add 20% at most unless something very special happened to their business since then that''s probably where they are going back to.

  • AAPL is 6.66% of the S&P 500 at $2.3Tn - I would say $100 ($1.5Tn) is a bit low as they are making $100Bn a year but AAPL has historically been undervalued so yes, $100 (20% over 2019) is a possible low for them but 20x is $125 and I''''m pretty sure that should be a firm bottom.
  • MSFT is 5.8% of the S&P at $1.9Tn They make $70Bn with great growth so let''''s give them 20x or $1.4Bn but, unfortunately, that''''s still 26% below the current price so $187 works our right about 20% over our 2019 level.
  • AMZN is 2.9% of the S&P at $1.1Tn They should be making $25Bn but this year they will be lucky to make $10Bn and 100x for a company that''''s been around for 28 years is just stupid. Of course, if you think that''''s stupid WTF were people thinking at 3,500? Here''''s the real danger as AMZN was trading stupidly in 2019, when it was making $11.5Bn so the danger for them is people getting less stupid and realizing paying 100x earnings is ridiculous because 50x is a 50% drop from here and that''''s still too much!
  • Well, that right there is 15% (1/6) of the S&P 500 and if $5.3Tn is 1/6.66 then the S&P must be worth $35.3Tn overall at the moment. Below AMZN we have GOOGL at $1.5Tn (lower weighted but higher cap) but they make $75Bn so we can give them a pass at 20x.
  • Then we have TSLA, who are also ridiculous at $735Bn making $15Bn so about 50x means they could drop 50% and still not be worth buying. BRK-A is $680Bn and make $30Bn so they could drop 20% easily.
  • And that''''s it for the big boys, next is JNJ at $461Bn and 16.7x, FB is $520Bn and 15x after falling back to their 2019 levels:
  • UNH at $442Bn is 20x, NVDA is $424Bn and 28x so danger there. They have good growth but I''''m not paying 28x.
  • XOM at $381Bn used to be the most valuable stock in the S&P. They are trading at just 10x their $40Bn in earnings but that''''s only because oil is so high ($110) at the moment.
  • PG, JPM, CVX, V, HD of that set, V is 25x and that''''s a worry but the rest are fine. Inflation is good for V but if the Consumers begin to fail not so much

So that is how we value the S&P 500 and think about each component and constructing an actual number that we can believe in. Getting into the mid- and mid-cap components (of the large-cap index) we see that they seem to have been sufficiently discounted that we should be OK, but AAPL alone might give up $800Bn, $500Bn from MSFT $500Bn from AMZN, $130Bn from TSLA, $100Bn from NVDA, $100Bn from

The good news is that''s only 7.1 percent and I believe the whole rest of the S&P has more than $3.5 trillion to give before becoming a bargain. So let''s say that 17.5% below here would be the very worst case and that''s still above 3,600, the worst case we predicted back in November even with the war factored in.

If we begin scaling into bargain stocks right now, we shouldn''t expect more than a 20% drop from here, even if the rest of the market strikes us down, and that means we can buy our initial stakes with confidence as long as we are confident in our hedges.

This sudden drop, however, was unfavorable for us as we were left bullish in the STP on Tuesday, and we have since lost $112,000 when we needed to gain. This is unfortunate, but now we''ll see how strong 3,840 is and, if we get back to 4,000 by tomorrow, we''ll be safe to stay bullish, but that would be a shame as we have $600,000 in CASH. I''d rather be putting to work buying longs.

More hedges are very straightforward as we just discovered that GOOGL, FB, and JPM are all fairly priced so we promise to buy them by selling deals and employing them to add additional SQQQ hedges:

  • Sell 5 GOOGL 2024 $1,600 puts at $100 ($50,000)
  • Buy 200 SQQQ 2024 $40 calls for $30 ($600,000)
  • Sell 200 SQQQ 2024 $70 calls for $23 ($460,000)

On the other hand, we''re considering buying 500 shares of GOOGL at $1,600 and GOOGL is at $2,237, and a 14.5% drop in the Nasdaq already seems very unlikely.

Note that while GOOGL puts in a PM account, since it uses only $36,700.52 in margin to do so, you still risk being assigned 500 shares at $1,600, which is $800,000 or perhaps $400,000 in regular margin. That''s fine for us due to our large LTP, but, for smaller accounts, make sure you sell puts in stocks you REALLY don''t know if the market drops another 20-40%.

In the STP, we already have short calls against our hedges, which is why we lost $112,000 in the first place this would fill the hole.

We need to focus on what we need to do, so we just must look and wait.

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