I will be the first one to admit I hate needles. In fact, I’ve been known to skip my annual flu shots out of cowardice simply to avoid the harmless prick of the syringe. The mere thought of a long needle jabbing into my arm, or other fleshy part of my body, has had the chilling effect of generating irrational decisions (i.e., I forgo flu shot benefits for no logical reason).
For months the talking heads and so-called pundits have speculated and fretted over the potential removal of the term “patient” from the periodically issued Federal Open Market Committee (FOMC) statement. Since the end of 2014, the statement read that the Fed “can be patient in beginning to normalize” monetary policy.
For investors, the linguistic fear of the removal of “patient” is as groundless as my needle fears. In the financial markets, the consensus view is often wrong. The stronger the euphoric consensus, the higher the probability the consensus will soon be wrong. You can think of technology in the late 1990s, real estate in the mid-2000s; or gold trading at $1,800/oz in 2011. The reverse holds true for the pessimistic consensus. Value guru, extraordinaire, Bill Miller stated it well,
“Stocks do not get undervalued unless somebody is worried about something. The question is not whether there are problems. There are always problems. The question is whether those problems are already fully discounted or not.”
Which brings us back to the Fed’s removal of the word “patient”. Upon release of the statement, the Dow Jones Industrial index skyrocketed about 400 points in 30 minutes. Considering the overwhelming consensus was for the Fed to remove the word “patient”, and given the following favorable factors, should anyone really be surprised that the market is trading near record highs?
In my last piece, I openly worried about a few very smart investment minds who have recently attempted to rationalize or justify the persistently high equity valuations we have seen over the past 25 years. I don’t believe that, “it’s different this time.” The modern economy doesn’t have any new magical component that makes a standard stream of cash flows any more valuable than they were 50 or 100 years ago. Nor have investors become generally more intelligent.
I think there’s a very simple explanation for the high stock market valuations since 1990: demographics. From 1981-2000, the baby boom generation came into their peak earning and investing years. Is it just coincidence that during that very same time we witnessed the largest stock market valuation bubble in history? No. In fact, there is a statistically significant correlation between demographic shifts like this and stock market valuations.
A few years ago a pair of research advisors to the Federal Reserve Bank of San Francisco demonstrated this link. They found that demographics (specifically, the ratio between retirement age workers to peak earning and investing age ones) is responsible for 61% of the changes in the price-to-earnings ratio of the stock market over time. Additionally, they found that when their model’s forecast p/e was off by a significant amount the real p/e consistently reverted to their forecast p/e.
All this means is that there is a very strong relationship between the size of the generation that is currently in its peak earnings and investing years and the valuation of the stock market. Over the past 25 years we have seen the single largest generation in our nation’s history, the baby boomers, push stock market valuations higher than they have ever been. It’s not magic; it’s simple supply and demand (mainly demand).
According to this theory, for valuations to remain elevated the stock market needs the generations that follow the baby boomers to maintain the same population growth that the baby boom represented. We already know that this just isn’t going to
Phil: I have spent the morning up until now comparing your LTP with my all-in-one portfolio which is made up of all short 2016 and 2017 puts. There is only one position in my portfolio and that is 100 ABX Jan 17 $8 puts at $.92. That said, your going to cash has not had an impact on my portfolio so I have elected to let it ride. YTD it is up 19%. Last year it was up 28.5%. Stop losses have been set for each holding in case we get the sell off we all anticipate.
Just put on a position 10 QRVO Jan 17 65 puts (short) at $7.99 in case you want to take a look at this stock which is at the time of trade was $83.61. First level stop is set at $9.99.Second level stop is set at $65 in the underlying stock, Third level stop is set at $57.01in the underlying stock which is breakeven.
That's right, we took advantage of yesterday's BS rally to cash out our Long-Term Portfolio at the exact high of 34.8%, up $173,815.03 in 16 months. We keep several virtual portfolios for our Members (and you can join us here) and the generally bullish LTP is paired with our Short-Term Portfolio, which acts as a hedge to the LTP positions but also makes short-term bets when the opportunities arise.
The STP has also performed much better than expected and is up 83.8% over the same time-frame at $183,820 off our $100,000 start for a combined gain of $257,635, which is 42% of our initial investment and that was our goaaaaaaaaaaaallllllllllllll for two years (see "How to Get Rich Slowly") and it's only March – of course we deserve a rest!
Cashing out our largest portfolio, in addition to protecting our profits, also helps us re-focus on what positions we REALLY want to play for the rest of 2015. We'll be making a new Buy List for our Members and we'll also be double-dipping on some of our winners (AAPL comes to mind) as soon as we see a good re-entry. One of the trades we did keep will be featured tonight on my TV appearance on Business News Network's Money Talk and we found 11 other trades we liked enough to keep in play (mostly ones that were underperforming) through the upcoming correction.
Also, it's not too late to participate in our "Secret Santa's Inflation Hedges for 2015" as inflation has not officially been recognized yet (so our picks are still cheap) but, as currencies race each other towards the event horizon, we have faith that our infation hedges will begin to pick up the slack. In any case, the way we designed our hedges, we don't need a big move in the market to make big gains on our spreads.
For example, ABX has gone nowhere since our December entry and, at the time, we called for the ABX 2016 $10/15 bull call spread at $1.60 to be paid for by selling the 2016 $8 puts for 0.70 which was net $900 at the…
WASHINGTON (The Borowitz Report) — Just hours after Senator Ted Cruz (R-Texas) told CNN that he had no choice but to sign up for Obamacare, President Barack Obama signed an executive order making Cruz ineligible for coverage under the Affordable Care Act.
“Clearly, the hardship of receiving Obamacare was causing Ted a great deal of pain,” the President said. “This should take care of that.”
Obama acknowledged that the executive order, which makes Cruz the only American expressly forbidden from signing up for Obamacare, was an extraordinary measure, but added, “I felt it was a necessary humanitarian gesture to protect Ted from the law he hates.” Keep reading >
"Faber explains how his investing approach has evolved from his days as a biotech analyst to becoming a quant “lite.” He describes how exchanged-traded funds are developed and marketed, and the typical mistakes that many investors make."
For years, the government has been manipulating its unemployment statistics to line up with its claim that the economy has recovered strongly.
Jim Clifton of Gallup finally couldn't stand it anymore and wrote a terrific op-ed on the subject. Here's an excerpt:
If you, a family member or anyone is unemployed and has subsequently given up on finding a job--if you are so hopelessly out of work that you've stopped looking over the past four weeks--the Department of Labor doesn't count you as unemployed. That's right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news--currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren't throwing parties to toast "falling" unemployment.
There's another reason why the official rate is misleading. Say you're an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20--maybe someone pays you to mow their lawn--you're not officially counted as unemployed in the much-reported 5.6%. Few Americans know this.
Yet another figure of importance that doesn't get much press: those working part time but wanting full-time work. If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find--in other words, you are severely underemployed--the government doesn't count you in the 5.6%. Few Americans know this.
There's no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.
--Jim Clifton, Gallup.com
The following chart depicts the substantial decline in employment since 2000.
Notice that the recovery in jobs during the stock market rally of 2003-2007 was only about 1/3 of the decline from 2000-2003. The recovery during the even longer and bigger rally of 2009-2014 has been about 40% of its…
The good news is that Main Street has now gained a toehold in the new national pastime, throwing money at software programmers as they seek to disrupt every industry under the sun and roll out essential new services we can’t imagine living without (It’s like Uber, but for twisting the cap back on your Poland Spring bottle for you). Retail investors can thank the mutual funds who have become the new financiers of Silicon Valley early- and late-stage funding rounds. The democratization of insane wealth creation has finally come to your IRA.
The even better news is that Fidelity, T. Rowe Price et al are getting mom and pop into these deals right at the ground floor – before they become the Facebooks and the Instagrams of tomorrow. And there are probably another twenty or thirty Facebooks just waiting in the wings for a little bit of walking-around capital.
Some pull quotes from a mind-blowing Bloomberg article that’s so chock-full of nuggets that it could pretty much serve as a digital time capsule for the current moment:
Hedge funds and mutual funds that once shunned venture-style deals are flocking to the market’s hottest corner, paying 15 to 18 times projected sales for the year ahead in recent private-funding rounds, according to three people with knowledge of the matter. That compares with 10 to 12 times five years ago for the priciest companies, one said.
Companies now valued at 16 times future revenue could easily lose a third of their value in a market pullback that Weber and others say may occur in the next three years. The other people asked not to be named because they didn’t want to be seen criticizing competitors’ deals.
LOL, throwing shade anonymously – sounds like someone got left out of the last jackpot deal! What else?
Mutual funds and hedge funds have elbowed into late rounds, both to boost returns and to ensure they can buy blocks of shares in IPOs as competition for tech offerings intensifies. Mutual-fund giants Fidelity Investments, T. Rowe Price Group Inc. and Wellington Management
The Pentagon lost track of sensitive equipment from a $750 million program to help U.S. soldiers spot roadside bombs — and some of it wound up for sale on eBay, Craigslist and other websites, according to a Navy intelligence document obtained by The Intercept.
The report went on to state that “more than 32,000 pieces of equipment were issued” under the program, and the items “are NOT for civili...
The Patriot act expires in June, and anyone in their right mind would wish the entire concept to go away entirely. NSA Spying has a 100% perfect track record of failure.
Sadly, the answer to the question Would NSA Data Surveillance End With Patriot Act? is a resounding "No". The National Security Agency would lose its legal justification for collecting data on Americans' phone and email activity if Congress does not reauthorize the Patriot Act by June 1, but privacy advocates are skeptical about whether that would mean the end of the controversial surveillance program.
President Barack Obama has called on Congress to pass a bill that would end the bulk surveillance program while keeping certain spying powers intact for national...
The University of Michigan final Consumer Sentiment for March came in at 93.0, up from the 91.2 March preliminary reading but down from the final reading of 95.4 in February and the 98.1 level in January. Investing.com had forecast 92.0 for the March final.
See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show last night. As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. (And get this, Obama - the President - is following Phil on Twitter.) ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Well, it didn’t take long for the bulls to jump on their buying opportunity, with a little help from the bulls’ friend in the Fed. In fact, despite huge daily swings in the market averages driven by daily news regarding timing of interest rate hikes, the strength in the dollar, and oil prices, trading actually has been quite rational, honoring technical formations and support levels and dutifully selling overbought conditions and buying when oversold. Yes, the tried and true investing clichés continue to work -- “Don’t fight the Fed,” and “The trend is your friend.”
In this weekly update, I give my view of the cur...
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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
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While I'm not going to argue the point about the possibility that Bitcoin drops to $1, or less, (that could happen yet, but not for the reasons you propose) I felt it necessary to point out something you seem to have overlooked.
While it's likely that the US government watching Bitco...
Bullish trades abound in Cypress Semiconductor options today, most notably a massive bull call spread initiated in the July expiry contracts. One strategist appears to have purchased 30,000 of the Jul 16.0 strike calls at a premium of $0.89 each and sold the same number of Jul 19.0 strike calls at a premium of $0.22 apiece. Net premium paid to put on the spread amounts to $0.67 per contract, thus establishing a breakeven share price of $16.67 on the trade. Cypress shares reached a 52-week high of $16.25 back on Friday, March 13th, and would need to rally 4.6% over the current level to exceed the breakeven point of $16.25. The spread generates maximum potential profits of $2.33 per contract in the event that CY shares surge more than 20% in the next four months to reach $19.00 by July expiration. Shar...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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