by phil - December 21st, 2014 8:15 am
I hope you get everything you want this holiday season and, most importantly, I hope you have time to spend with your family. I love waiting for my kids to wake up on Christmas morning to come out of their rooms so I can videotape (gosh I’m old, there’s no tape anymore) them in those first moments of Christmas morning – how can I not be of good cheer anticipating that?
I have something I can give you for the holidays as well. Not peace on Earth but perhaps peace of mind heading into the New Year – a way to help insure some future prosperity with a few inflation-fighting stock picks that can brighten up your portfolio, which also can be used to help balance the budget against unexpected cost increases.
This isn’t an options seminar or one about risk or leverage – these are just a few practical ideas you can use to hedge against inflation as it may affect your everyday life using basic industry ETFs and some simple hedging strategies to give you an opportunity to stay ahead of the markets if they keep going higher.
We haven't felt the need for inflation hedges since 2011 as the Fed has kept us in a somewhat DEflationary cycle but our 2011 hedges were good for 300-600% returns and we're simply going to repeat the same, simple concepts here to set up good, rational hedges against inflation to insure a financially healthy and happy 2015:
Idea #1 – Hedging for Home Price Inflation
Let’s say you have $40,000 put aside for a deposit on a home but you’re not sure it’s the right time to buy. On the other hand, let’s say you are worried that home prices will take off again (I doubt this but you never know). XHB is the homebuilder’s ETF, currently at $33.28 and they bottomed out at $28.50 in October and back near the highs for the year now.
You can sell 20 contracts of the XHB 2017 $28 puts for $2.25 each ($4,500) and that obligates you to buy 2,000 shares of XHB at $28 (16% off the current price) and you can use that money to buy 20 2013 $28/33 bull call spreads for $3.30 ($6,600) and…
by ilene - December 19th, 2014 6:48 pm
Must See: Phil visits with Money Talk's Kim Parlee on Business News Network. In this great interview, Phil talks about his target price range for oil and presents an options trade idea that he is calling the "Trade of 2015."
Click on the links:
Segment 1 (Oil, Russia, and the Fed) : http://www.bnn.ca/Shows/Money-
Segment 2 (Trade of the Year 2015) : http://www.bnn.ca/Shows/Money-
In segment 2, Phil introduces the trade of the year for 2015 and discusses the strategy of "being the house." (See also "Be the House – Not the Gambler.")
by phil - December 19th, 2014 7:40 am
Help, I'm getting a nosebleed!
Like a roller-coaster that takes you higher and higher, it's fun to anticipate the drop ahead but now we're running out of oxygen at these levels (and yes, we're shorting again) as the Russell challenges 1,200 again and the Dow, S&P and Nasdaq come close to their highs yet again.
Fortunately, this was all foreseen this week and we sold a lot of our shorts in our Short-Term Portfolio on Tuesday's dip and now it's our bullish Long-Term Portfolio that's zooming along with the markets, adding $35,000 this week, all the way to $590,375 (up 18.1% for the year) at yesterday's close. Our STP dropped to $175,711 (up 75.7%) but that's a combined $766,086 – a new years high (up 27%) for our combined virtual portfolios – just in time to end the year, too!
This is very much in line with our "Get Rich Slowly" strategy we discussed over the weekend as we're well outpacing our 20% goal in all four of our Member Portfolios. As you can see on the chart, getting consistent returns of 20% or more puts you on a path for exceptional portfolio growth and the key to getting there is to follow Warren Buffet's Rule #1: "Don't lose money!"
That's why we run our Yin and Yang strategy on our two main portfolios. The $500,000 Long-Term Portfolio is generally all bullish (given our long-term bullish outlook) and we offset/hedge those bets with a generally bearish Short-Term Portfolio. That allows us to maintain our long-term positions when there are market dips, like we just had, without having to panic in and out of positions that are designed, for the most part, to take advantage of time decay using our "Be the House – Not the Gambler" strategy that has been our theme for 2014.
Our long-term outlook remains bullish and short-term, we still expect a sell-off no later than January earnings (very disappointing overseas revenues, energy sector collapse, low retail sales) and we began adding back short positions to our Short-Term Portfolio to lock in our Long-Term gains and lean a little more bearish into today's Quad-Witching event.
by phil - December 18th, 2014 7:42 am
Wheeee – what a ride!
As we expected, the anticipation of the Fed doing something wonderful led to a big rally in the morning and the fact that the Fed didn't actually do anything at all wasn't enough to stop the party train once it left the station. My comment in yesterday morning's post (which you can subscribe to HERE) was:
At the moment, we are expecting the Fed to keep things going and we're long on the indexes again at 17,100 (/YM), 1,975 (/ES), 4,100 (/NQ) and 1,135 (/TF) but with tight stops below and, if any two are below the line then none of them should be played.
This morning, we are flipping SHORT at 17,500 on /YM (up $2,500 per contract from yesterday's call), 2,035 on /ES (up $3,000 per contract), 4,220 on /NQ (up $2,400 per contract) and 1,185 on /TF (up $5,000 per contract). We think the run is officially overdone at this point and we also added some Jan TZA calls back to our Short-Term Portfolio to hopefully catch another nice move down into Christmas.
Europe is up 2% and more on the Continent this morning as Putin gave a speech in which he assured his people that the country's economic troubles would pass in no more than two years. How that's considered rally fuel is beyond me but it's Christmas – people want the markets to go up – so they do. On the whole, it's all going according to plan. As I said to our Members into yesterday's close in our Live Chat Room:
They want to spin Yellen's comments as bullish as possible to get Asia and Europe to buy so we may be higher at the open (from Futures) but then I expect a sell-off from there.
So we're just following the plan and I drew up the lines from our 5% Rule™ on the Nasdaq to illustrate our expectations.
by phil - December 17th, 2014 8:20 am
What a wild ride yesterday was!
As we predicted, we opened down half a point and then raced all the way up to our strong bounce lines before tumbling back to give up all of those gains and more – a major technical failure for the markets but a huge profit for anyone who followed our trade ideas in the morning post.
Using the bounce lines we published early in the morning for the Futures trades gave the following outcomes on that morning spike:
- Dow (/YM) Futures 17,000 to 17,350 for a $1,750 per contract gain
- S&P (/ES) Futures 1,965 to 2,010 for a $2,250 per contract gain
- Nasdaq (/NQ) Futures 4,120 to 4,180 for a $1,200 per contract gain
- Russell (/TF) Futures 1,130 to 1,155 for a $2,500 per contract gain
I called the top in our Live Member Chat Room at 11:42 and, since we had made a public pick in the morning, I also tweeted out the note to take profits for our followers (and on our Facebook page, of course). That's how we pick up a little spare change in the Futures while we wait for our bigger positions to play out.
In fact, we also cashed in a couple of our bearish positions on DXD and SQQQ that were up significantly on yesterday's drop, leaving us a little bit less bearish ahead of the Fed – just in case they actually do something today that boosts the markets. We don't really expect it, but not taking 100% gains off the table is just foolish – we can always find new hedges to cover our longs with.
As you can see, our Short-Term Portfolio finished the day up 96.5%, a gain of $22,310 from Monday's close so of course we wanted to take some off the table. Our cash position has increased by $46,500, which was one of our primary goals (getting to mainly cash) into the holidays, which are just 7 days away now. All in all – perfectly timed this year!
by ilene - December 16th, 2014 8:27 pm
By John Mauldin
Last week we started a series of letters on the topics I think we need to research in depth as we try to peer into the future and think about how 2015 will unfold. In forecasting US growth, I wrote that we really need to understand the relationships between the boom in energy production on the one hand and employment and overall growth in the US on the other. The old saw that falling oil prices are like a tax cut and are thus a net benefit to the US economy and consumers is not altogether clear to me. I certainly hope the net effect will be positive, but hope is not a realistic basis for a forecast. Let’s go back to two paragraphs I wrote last week:
Texas has been home to 40% of all new jobs created since June 2009. In 2013, the city of Houston had more housing starts than all of California. Much, though not all, of that growth is due directly to oil. Estimates are that 35–40% of total capital expenditure growth is related to energy. But it’s no secret that not only will energy-related capital expenditures not grow next year, they are likely to drop significantly. The news is full of stories about companies slashing their production budgets. This means lower employment, with all of the knock-on effects.
Lacy Hunt and I were talking yesterday about Texas and the oil industry. We have both lived through five periods of boom and bust, although I can only really remember three. This is a movie we’ve seen before, and we know how it ends. Texas Gov. Rick Perry has remarkable timing, slipping out the door to let new governor Greg Abbott to take over just in time to oversee rising unemployment in Texas. The good news for the rest of the country is that in prior Texas recessions the rest of the country has not been dragged down. But energy is not just a Texas and Louisiana story anymore. I will be looking for research as to how much energy development has contributed to growth and employment in the US.