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Wednesday, August 17, 2022


TGIF – The Worst First Half in 50 Years is Finally Over

Down 21%.

That’s where we have left off the first half of the year and that is actually worse than the first half of 2008 or 2009 or 2000 or 1987 or any other crappy year you can remember since Nixon.  Of course it’s human nature to extrapolate and imagine we will go down another 40% but we discussed how unlikely that would be last week, when the market was a bit lower than it is now and it’s still unlikely – but you can’t stop people from panicking – so it is possible, just not likely.  

When the World was shut down from Covid our economy was down 25% ($5Tn) and that 25% was made up for in stimulus – so it didn’t LOOK like we were down 25% – BUT WE STILL WERE.   Now we have no stimulus but we are not shut down so reality is somewhere BETWEEN -25% and almost certainly not 100% which means 21% off the top is probably the bottom of the likely range.  

Of course, Corporate Profits do not completely correlate with GDP and Inflation throws a wrench in the works as well but, more importantly, the market was giving excessive multiples to earnings, which means the indexes are likely to over-corrrect BUT that also means that we can pick individual stocks that are getting dragged down with the indexes for no good reason.  

Micron (MU) for example, is down 5% last night after beating on earnings but lowering guidance.  HOWEVER, the lowered guidance is for making $7.50 per share in 2023 and $8.65 per share in 2024 yet the stock is falling from $55 to $52.50 this morning because the algos that run the market only hear “lower guidance” and don’t stop and do the math that it’s being lowered to what is effectively a p/e of 7.

Micron is a debt-free company with a $60Bn market cap that will make over $20Bn (33%) in the next two years.  If it were a start-up, people would be throwing money at it.  Instead it is trading like they are going bankrupt.  As I said, you can’t stop traders from panicking – it’s their default setting so we don’t pick a bottom – we just INVEST in MU on the way down, improving our position and accumulating shares until the madness ends.  

Earnings season kicks off on July 14th so just two weeks until we are dealing with actual facts instead of speculation.  Between now and then we have PMI, ISM, Consumer Credit and Non-Farm Payrolls next week (short week) and, into Earnings we get CPI, PPI, June Retail Sales, Michigan Sentiment and Industrial Production & Cap Utilization.  As long as the inflation numbers aren’t too scary – there’s nothing here that should spook the market between no and then.  

We spent $300,000 (25% of our cash) improving our positions in the Long-Term Portfolio (LTP) yesterday.  Last week we added the most new stocks to that portfolio as we have in any week since March of 2020 so, HOPEFULLY, we were right and picked another good bottom – we’ll just have to wait and see.

Have a great weekend, 

– Phil



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TZA/Phil: Please let me know how you might adjust this spread to maximize profit:

60 TZA 1/23 30's @ 20

-20 TZA 1/23 45's @ 13.6

-50 TZA 1/23 50's @ 12.3

I also have 1/24 TZA's as I have been peeling off the '23's to a '24 position:

50 TZA 1/24 40's @ 21

-20 TZA 1/24 55's @ 17.6

-50 TZA 1/24 60's @ 16.6

thank you-Have a great holiday weekend gents!

Phil / Hedging

Thanks for the explanation. Looking forward to the mattress play.

The ratio I was asking was NOT between LTP and STP. Of the hedges I have, potential hedge in TZA and SQQQ is about 50:50. I was asking if that sounds right or if I should add more hedges using SQQQ since that seem to go down fast. Hope I am asking the question right.

phil / website

I have been going through your posts to understand how you adjusted the trades over a period of time. I know you are trying to upgrade your website. Right now, it's not easy to track the trades and portfolio reviews the way it's now on the website. The website has amazing content.

I have lots of ideas on what will be helpful in the website to follow and learn from the perspective of a beginner who is looking to learn. I will be happy to discuss them with you when you have some time. 

At the minimum, you could organize the website content as a book to teach various concepts using real trades and portfolio during the recent bull and bear markets. 

Have a good weekend!

Phil,  Good music the last couple of days

Everyone, Have a safe and happy 4th of July     

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