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 2016 $28/33 bull call spreads for $3.30 ($6,600) and…
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 phil - December 16th, 2014 7:42 am
This is getting very ugly.
This picture was from Moscow on Friday, with the sign offering 54 Rubles for $1 and offering to sell Dollars for 59 Rubles (nasty spread). Today, just 4 days later, you need 80 Rubles to buy a Dollar with that currency dropping 45% (so far) in less than a week. This is happening DESPITE the Russian Central Bank raising it's overnight rates to 17% from 10.5% – up 62% overnight – AND IT DIDN'T HELP.
This is bad, folks. Russia isn't Greece, Russia is a $2Tn economy with 143M people and very close ties to satellite nations that surround them so the contagion is likely to be fast and direct and can very easily spread quickly to Eastern Europe, which hasn't been strong in the first place. In our Live Member Chat Room this morning, we discussed the impact of the Russian Rate increase:
Raising the rates makes (in theory) your notes more attractive so people use their relatively stable foreign currencies to buy your Ruble notes so they can benefit from the high interest rates. The problem for Russia is that their currency is down 50% this year and 10% this week so it's not that attractive to exchange $10,000 for 650,000 Rubles (at 65 to the Dollar) at 17% and get back 760,000 Rubles next year only to find out it's now 100 Rubles to the Dollar and now you only have $7,600. This is the kind of spiral that leads to hyperinflation.
Don't forget, you also have to believe that the country you are lending money to won't default. Russia did default in 1998, which was only 16 years ago and now oil is simply crushing their economy so why on Earth would you give them $10,000 to hold for 2-5 years –
by phil - December 15th, 2014 7:48 am
The Russell 2000 (we're short) went negative for the year on Friday. How long until the other indexes begin to follow? Even with incredibly low oil prices ($56.25 overnight lows) the Transports just gave up the 20% line, less than two weeks after giving up the 25% line. The Dow (we're short) itself is up just over 4% for the year now, S&P 8.5% and Nasdaq 11.5% (we're short them too).
The question before us now is – "How low can we go?" So far, we're not even close to the drop we just had in October. For the Transports, that would be a tragic 15% drop from where they are now, as they led the rally off those lows.
The other indexes are about 10% above those levels and we'll see if Santa has completely forsaken the markets over the next couple of weeks but the technical damage is done and fear has come back to the markets with the VIX rocketing up to 23 on Friday, settling into the close at 21.
That's going to make is a fantastic time for us to sell some long-term options and we'll be looking into our "Secret Santa's Inflation Hedges" next weekend in a post but during the week in our Live Member Chat Room. We don't do them every year, the last time we called for inflation was back in 2011, when our 5 hedges averaged over 200% returns for the year – THAT's the way to hedge against inflation!
As we were discussing in Member Chat this weekend (thanks ZZ), we may be approaching a Bondocalypse, the likes of which we haven't seen since the collapse of the bond market in 1994. While the MSM is burying the news, the 2-year notes are now at a level not seen since 2011 (when we last became justifiably concerned about inflation) with expectations of Fed Funds climbing to 1.375% by the end of next year – up over a point and all the way to 2.875% at the end of 2016!
Such a rapid (and necessary) rise would CRUSH the bond market, where people have sold 10-year notes for…
by phil - December 13th, 2014 7:53 am
Do you want to be a Millionaire?
Sure you do, why not. $1,000,000 is a nice amount of money – even at 5% interest in retirement, it's enough to drop $50,000 into your bank account each year to supplement whatever else you may have coming in. So let's agree that it's nice to have a Million Dollars.
Now I'll say something you may not agree with – if you are not on a path to have $1M in the bank by the time you retire – it's probably your own fault.
Yes, I'm sorry but it's true. It's really not as hard as you think to save $1M and I'm going to teach you how and, as long as you are under 50, I can show you how to get on the path to turning $50,000 into $1M in 25 years. If you are under 40 – it's going to be a piece of cake to save $1M by the time you are 65 - as long as you can follow our plan.
First I need to convince you of the value of SAVING YOUR MONEY – this is not something most people are good at – especially young people. Unless you accept the VALUE of saving your money, you will not be able to make the wise choices you need to make to get on the path to saving $1M.
This is a compound rate table. It's a mathematical fact. If you start with just $10,000, even at 10%, you will have more than $450,000 in 40 years. I'm 51 now and I can tell you that 30 years ago, I could have bought a cheaper car after college and saved $10,000. I could have gone to 20 less concerts and saved $2,000 and 20 less fancy dinner dates for $2,000 and taken one less ski trip for $2,000 – you get the idea. I was young and I was successful but I didn't know at the time that EACH $10,000 I spent in my 30s would cost me $450,000 in my 70s.
by phil - December 12th, 2014 7:50 am
Wheeeeeee – what fun!
I know, you thought I was going to be wrong, didn't you? Yesterday morning we said: "we're expecting to see 0.5 to 1% bounce before we head lower again" and, in our Live Member Chat Room (because we ran out of free picks for the week) we set our official strong bounce targets at:
- Dow – 17,659
- S&P – 2,044
- Nasdaq – 4,730
- NYSE – 10,735
- Russell – 1,174
It seemed like we were going to break higher as the Dow topped out at 17,758 heading into noon with the S&P 2,055, Nasdaq 4,759, NYSE 10,786 and Russell 1,180 but, fortunately, we were keeping our eye on the volume and, at 9:54, while the S&P was rocketing higher, I commented to our Members:
So, as usual, the RUT is in the lead with the Nas right behind and those are our manipulated indexes so we want to see volume to confirm the move. Yesterday, we had strong down volume (152M on SPY) with decliners outpacing advancers by about 5:1. Today, so far, just 12M on this "rally" – which is just nonsense that can be erased in minutes by a single fund hitting the sell button (average share is $50 so $600M selling would wipe this gain out).
We don't just make picks at PSW, we teach our Members HOW the markets work so they can better understand the intra-day as well as the long-term moves which then helps them to make much better trading decisions. Fortunately, our trading decision, at 11:54, was to stick to our guns and short the Futures across the board:
At this moment, in the Futures, I'm watching 17,750, 2,055, 4,300 and 1,180 and playing short the laggard. RUT bounced me out but up $370 was worth doing and I really like /NQ not to make 4,300 as a bet at the moment (4,293.50) and, of course /YM 17,750 as my key shorts (unless /TF tests 1,180 again).
by phil - December 11th, 2014 8:11 am
I'm sorry but I will brag about this.
What other newsletter gives you a trade idea Wednesday morning that makes you $1,500 by the end of the day? It's not a rhetorical question – if there is one, I'd love to feature them here at Philstockworld, along with our other fantastic authors. I'm not talking about some vague, Jim Cramer BUYBUYBUY, SELLSELLSELL kind of trade either – I'm talkiing about a specific trade idea that makes you bags of money instantly.
In yesterday's morning post (7:40 am), my trade idea was:
If you need a fresh horse, /ES (S&P Futures) are testing 2,050 and it would not be good for them if they break and, of course, we still like /NKD (Nikkei) Futures short at 17,600 with a 17,300 goal (goes with the EWJ puts).
The result of the /NKD (Nikkei Futures) trade is above and, actually, we overshot our goal and got past 17,200, which is actually a $2,000 gain on each contract. By the way, for those of you who are not Members (and shame on you as you can join here) and don't attend our Live Futures Trading Workshops, a Futures contract is not much different than an option contract – it's just a bet on the direction of an index or commodity with a lower friction cost.
In fact, the margin requirement for each /NKD contract is $4,400 and similar for the other indexes – that's what's required to make these trades. The S&P contracts (/ES) paid $50 for each point and that index fell to 2,025 for a lovely $1,250 per contract gain as well.
Today, we're expecting a 0.5 to 1% bounce before we head lower again, but we're not making an official call because we're not sure. As I often tell our Members during our futures trading seminars – they key to making money on the Futures is NOT playing them 90% of the time – tempting though it may be.
by phil - December 10th, 2014 7:40 am
Wheeeee, what a ride!
As you can see from the chart, we got a nice round-trip on the Russell in the last two sessions but it smelled a little like BS to us so we shorted into the close and picked up a nice winner (back to 1,182 for a $300 per contract gain) already this morning (see our Live, Pre-Market Member Chat Room) – and the Egg McMuffins are paid for.
We also got a near round-trip on the Shanghai, with the Chinese index popping back 3% this morning but, fortunately, we made the call to take 1/2 of our FXI puts off the table yesterday at $1.60 – up 80% from our Monday pick. If you don't like making 80% in 24-hours, DO NOT SUBSCRIBE HERE! How's that for reverse psychology?
If you are futures-challenged and looking for a good hedge, TZA is the ultra-short ETF that tracks the Russell and our logic on this trade idea would be that the Russell is unlikely to pop over 1,200 without pulling back and, if they do, it's an easy place to stop out with a small loss. That means you can take a position with the Jan $12/14 bull call spread at 0.70 and sell the Jan $12 puts for 0.45 for net 0.25 on the $2 spread that's 0.85 in the money at $12.85 this morning.
That trade gives you a 700% upside on cash if the Russell even flinches lower and your worst-case if the Russell goes higher is you end up owning TZA at net $12.25, still 0.60 lower than it is this morning. That's how easy it is to take a hedged position. And you don't have to sell TZA – that's aggressive. You could instead sell puts on a stock you REALLY want to own if it gets cheaper, like FCX Jan $25 puts at $1.30, selling 5 of those for $650 lets you buy 10 of the spreads for $700 and gives you $4,900 of downside protection – not bad, right?
FCX was a new Top Trade Alert Yesterday. We reviewed our first few Top Trades …