Archive for 2008

Weekly Wrap-Up

So we finished the week up about 50 points on the Dow but the S&P was flat and the Nasdaq about the same.

It was a tough way to get there but we've been looking for consolidation with a rotation out of financials and energy and, to some extent, that's what we got but a stampede out of financials on fear of a collapse wasn't exactly the healthy rotation we were looking for.  The week started with an FBI investigation of CFC and 15 other lenders for securities fraud and Barrons came out against FRE last weekend (this weekend it's BSC of course) and Fitch downgraded 8 banks.  The fact that the XLF finished the week down just 2% is pretty amazing!

We made fantastic progress in our virtual portfolios as we were lucky enough to be in a buying mood on Monday, as we discussed in last week's wrap-up and on Monday morning I noted "can sentiment really get any worse?"  We decided to move into more Long-Term Virtual Portfolio style plays and what a great week for that it was as our LTP gained 10% on the week, very much in line with AAPL 2010 $100s at 44.12 we picked that morning (now $48.15).  I cannot emphasize enough how well the LTP strategy can protect you in uncertain times like this, as I explained in Monday's post, it's a great way to stay in the game while you wait for the market to turn.

Monday evening both Sage and I coincidentally wrote articles about the evils of commodity infation although, it wasn't really a coincidence as it should be the thing that bothers investors most about the economy.  Runaway commodity inflation is the one thing that undermines my bullish premise of global growth as NO economy is doing well enough to pay $150 a barrel for oil.

Tuesday the Fed finally stepped in (we had been waiting for this shoe to drop since last week) and we had a nice 400-poiint day but we decided not to get too excited about it without some follow-through.  We made a terrible play on SIGM which we rolled down to the Jan $25s at…
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Follow-Through Friday???

We were worried about the CPI report yesterday and so was the rest of the world.

Asia sold off last night despite our very decent day with the Nikkei falling 191 points in a poor afternoon session while the Hang Seng fell 64 points, flatlining at the 22,200 mark, almost exactly 30% off the November highs of 31,800 and back to the level they broke out from last year.  Are we seeing signs of global rotation out of Asia (still out gaining the Dow by over 2:1 over the past year) that is following the cheap dollar into US equities or is the entire global market party coming to an end?

While Bloomberg headlines with "Agency Mortgage-Bond Spreads Fall on Financial Company Optimism," Mr. Murdoch’s Journal would have us know on page one that: "Futures Slip Ahead of Inflation Data" and "Recession Gloom Gathers" and "Nervous Banks Drain Carlyle Fund," which apparently Mr. M is trying to get one more day out of.  Let’s forget the fact that (now 8:48) the pre-markets are clearly higher, or that the CPI came in surprisingly flat and non-inflationary (leading the Journal to say "INFLATION flat in February"). 

Unfortunately, the Journal has lots of charts and graphs and cool pictures while Bloomberg is pretty much straight text so Rupert rules and the MSM remains bearish in the face of all contrary data.  The CPI came in so low that we have to question the data, somehow it measures energy prices as having gone down 0.5% in February (despite oil climbing from $86 to $102 during the month), so a rational person may wonder how that happened.  Yesterday I said that Paulson pleded the Plunge Protection Team would do "whatever it takes" to support the markets and this AMAZING CPI data paves the way for a BIG Fed cut next week, which they can now claim will not overstimulate inflation.

Pay no attention to that $110 barrel of oil behind the curtain!

So the government is going to have us believe that $110 a barrel oil is not something we should worry about because it’s not really infaltionary.  This despite the fact that heating oil in the Northeast is up .70 per gallon in the past 4 weeks (20%) or that $4 a gallon gas is once again showing up at West Coast service stations.  The…
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Thrilling Thursday Wrap-Up

Wheee, that was fun!

It's amazing what just 2 days of good market calls can do for your virtual portfolios.  In just 2 days we've taken our small virtual portfolios from down 30%+ back to about even, that's a 50% upside gain in 48 hours – now if we can just do that without starting off with the loss we'll be in good shape.  We were more lucky than good in salvaging our positions but I will pat myself on the back for my 9:37 decision, which was: "Rutterfly – if you can afford to take out just one caller, do so!  XXX  as many as possible."  That kind of set the tone for our trading day – committing our remaing cash and "going for it" in the small virtual portfolios is an indication of how strongly I believed we were going up for the day.

It's times like this I like to remind members that I'd rather be lucky than good because good and unlucky is just as broke as bad and unlucky.  We were thrlled to get our money back and get back to better than 50% cash positions in our small virtual portfolios and now we are left with some nice, manageable spreads and we can all have a nice weekend and concentrate on our rolls next week.

The worst thing you can do in an ultra-volatile market is start thinking you're smart just because you had a good day.  I quoted Churchill the other day who said: "Everyone has his day, and some days last longer than others."  That's why our goal is to simply stay in the game and recognize the opportunities to take our profits off the table – even when "profits" mean just getting even.  I often say to members when we get behind on a spread: "Stop trying to win and start trying to get even."  This is a very important lesson to learn and it's how we try to follow Warren Buffett's Rule #1 – Don't Lose Money!

If we can just make it through a TERRIBLE Q1, like we've had so far, and just stay even, then we are going to be in great shape to take advantage of the market when that turn does come.  For those of you who took my January advice and took the month…
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Morgan Stanley attracts out-of-the-money put positions despite upside for brokerages

MS – With brokerage shares still humming along from the jump-start of this week’s Fed liquidity action, we were interested to see decidedly contrary share price action in Morgan Stanley. Morgan, which joins sector peers Lehman Brothers, Goldman Sachs and Bear Stearns in reporting earnings next week, closed 3.5% lower at $41.01 this afternoon. Its option implied volatility – a measure of the level currently shows an 11% higher risk premium to Morgan Stanley shares over the next 30 days than they have shown historically – a figure that is likely to climb in the leadup to next Wednesday’s report. Earlier this week the New York Times reported that the shareholder-activity CtW Investment Group, which represents some $1.4 trillion in pension funds, may lobby Morgan Stanley investors to vote down CEO John Mack – the man who has led Morgan Stanley through nearly $11 billion in writeoffs.

Speculation over the imminent leave-taking of a CEO has been a factor in option trading in financials for months now – witness the November out-of-the-money call buying we saw last fall as calls for the resignation of Citigroup CEO Chuck Prince began to grow. Call-buying in Merrill Lynch also picked up when conjecture about the departure of Stan O’Neal gathered strength. But while the heat is on John Mack, the heat is off Morgan Stanley calls, with twice as many puts are trading as calls in Morgan Stanley suggesting a largely bearish tinge to the action today. Even more interesting is the strike placement of this volume – it appears that a trader today looked to roll over a 7,000-lot position in March 35 puts into the same strike at the April contract for 75 cents. A long position at this strike is playing on a downside break to Morgan Stanley shares to 5-year lows.

EL – A whiff of ratio put spread activity in cosmetics giant Estee Lauder sent option volume to more than 18 times the normal level, suggesting limited summertime downside for the skin care brand despite the fact that its shares traded .42% higher at $45.16 today. With today’s volume heavily localized in the July contract, it looks like a trader sold 2 of the July 40 puts at $1.15 against the purchase of 1 put at the 45 strike for $2.95. This strategy allows the trader to limit the trade cost to a debit of just 65 cents,…
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Thursday Thump

[Go to article]Not again!

How many times to I have to call my Thursday post "Thursday Thump?"  It's been pretty much every one this year and that is NOT a good pattern, even if we do recognize it.  I detailed our woes in yesterday's wrap-up but today my worst fear came to pass as the dollar finally fell below 100 yen, it's worst level since 1995, when we were just recovering from the economic disaster left to us by George Bush the First.

Needless to say, the Japanese stock market, very heavy with exporters (1/2 of their GDP comes from exports), did not take it well, dropping 3.3% (427 points) on the day and finishing at the year's low.  Our all-time low against the Yen was 79.95 yen to the dollar in April 1995 and we are now down 30% since last August!  Tokyo was a picnic compared to Hong Kong, where school picnics (and schools) were canceled due to influenza.  The Hang Seng dropped 4.79% today (1,121 points) and, like the Nikkei, was only saved by the closing bell.  The flu scare seems to be overdone but the dollar scare is very, very real and very, very scary.

Europe is trading off about 2% this morning as news hits that Carlyle Capital is likely to be liquidated and lenders have already seized the assets and began selling off the fund's $21.7Bn in mortgage backed securities.  We talked about this last week (Thursday actually) so it's no surprise to us but apparently not everyone reads PSW and many people seem to be shocked that the $100M "loan" from their parent group last week wasn't enough to bail out this 26x levered fund.

Last week we entered some of our financial plays a little early on the Carlyle news so we're going to watch and wait this week but we are less than a week ahead of another massive Fed cut so let's hope we can form a nice bottom here on the XLF, which we fortunately covered yesterday.

Retail sales in the US knocked ANOTHER 50 points off the Dow at 8:30 (now down 150 pre-market) as they DECREASED 0.6% in February against an estimated 0.1% increase.  Excluding autos and gas sales, retail sales were only…
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Whiplash Wednesday Wrap-Up

It's funny to review my comments for the day and watch myself turn bearish!

While I was cautious in the morning, I was cautiously optimistic.  We saved HUM by rolling it down, AET was a fantastic play although I ended up doing a mo play rather than the '09s, we got a good entry on SIGM (we thought) and then got a cheap roll (we thought) but they got KILLED on earnings despite incredible gains because they had to make an order adjustment to a major client.  This is still a BUYBUYBUY on the dip so we're going to DD on the '09 $25s if they stay down here in the morning.

I often say to members the single most profitable strategy in following trades at PSW is to wait until we double down, it means you are getting in at a much better price after we have taken our lumps, reviewed the situation and decided we want to not only stick with a position, but to commit more capital to it – much better than paying retail!

So the day started off well enough and luckily we were too busy closing out our March postions (as noted in the morning post) to take on new ones as the market climbed.  As early as 9:46 I was warning to cover Google into the rally and we closed out Apple in the DTP and got out of C, thankfully, even.  XOM puts got our morning off to a good start but CAL calls are not looking so good so far.  At 10:02 I warned on taking BSC off the table before we blew the gains and our CROX calls came back in the money (we covered later).

The draw in oil was huge (6.2Mb) and we had a nice rally off of that number as crude pulled back sharply but the pullback in crude, and the market rally were quickly taken down by two events.  Steve was right on the ball and called our attention to the fact that Admiral Fallon, Fallon, the military commander of US Middle East operations who said an attack on Iran would not happen "on my watch," suddenly resigned – this sent rumors flying that military action was imminent.  Of course, with THIS candidate on deck to lead us – it's not all that surprising.

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Managed-care takes another hit…and Caterpillar volatility still elevated

Today’s tickers: CAT, TMA, UNH, HUM, CVH, RIO, MSFT, COF

CAT – Shares in Caterpillar, the iconic maker of steam-shovels and bulldozers, hammered 4.3% higher to $75.74 today after the company surprised the market with a lift in its 2010 sales forecast. Caterpillar CEO Jim Owens said the company stood to profit handsomely from the construction expansion projects in the emerging markets as well as infrastructure upgrades in North America and Europe. The gain in share price elicited a 100% gain in call volume for Caterpillar this morning. What’s interesting to note here is the gradual upward spike in implied volatility over the month of March and how it remained unchanged after today’s positive news announcement. Since the start of the month, implied volatility in all Caterpillar options has gapped 30% higher, remaining steady at 32.5% today even after the amended sales forecast. This shows about a 14% risk premium to Caterpillar shares over the next month, and may explain the brisk trading in March 75 puts, as well as calls at the 75 and 80 strikes, that could suggest volatility trades on the rise today.

TMA – From extreme unction…to extreme liquidity? Thornburg Mortgage, the jumbo-adjustable-rate mortgage lender that tanked last week when it failed to meet a margin call, recovered 110% from yesterday’s levels to read $3.30 in early trading. The move came after a Bear Stearns analyst surmised that yesterday’s move by the Fed to grease the hinges of the credit market by expanding its securities lending facility would greatly aid Thornburg’s chances of survival. The doubling in share price sparked a veritable trader’s market in March 2.50 calls, which went to buyers and sellers for around $1.25 apiece on volume nearly twice the open interest. The move to sell puts at the 2.50 strike suggests that, indeed, the darkest hour of “extreme unction” for troubled Thornburg may have passed, and that the share price may reasonably be expected to hold on to current levels for the duration of the March contract. Option premiums suggest a better-than-75% chance of that being the case.

UNH – Another bearish upshot for the managed care companies followed today’s announcement by the nation’s second-largest Medicare servicer, Humana, that it would lower its earnings guidance for the year due to rising prescription costs. While the impact on Humana’s share price and option activity was swift and sure (detailed below), we observed a…
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Will We Hold It Wednesday?

Levels, we need levels

And what levels do we need?  How about last Monday's?  Last Monday we were hoping we had found a bottom at around 12,200 and were hopefully consolidating for a move back up to retest 12,750.  Notice the Big Chart of that day indicated the Dow was still above the "Feeling Better" line at 11,808 that we had drawn back in January as a key resistance point and holding it (more or less) Thursday and Friday is what kept us bullish last week.  New members (and welcome by the way) need to learn to love the Big Chart.  The Big Chart is wise and good and keeps us from panicking for no reason as well as telling us when we SHOULD be panicking.   












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Terrific Tuesday Wrap-Up

Whee – what a day!

That was just way too much fun but it's still not a clear victory until we get a little follow-through so I will save my victory speech for tomorrow.  As Winston Churchill once said: "Everyone has his day, and some days last longer than others."  Today was certainly a day for the bulls and I predicted this afternoon that it would last through tomorrow based on the fact that the Europeans were not buying our rally in the morning and will be forced to come in and play catch-up tomorrow.

Also apropos to Mr. Churchill (a personal hero of mine) is his quote that relates so well to the hyena attacks that took this market down to ridiculous levels  of late:  "A lie gets halfway around the world before the truth has a chance to get its pants on. "  The market has been moved by rumors for weeks and what really surprised me is how little people understand the stocks they invest in.

I said to members on Monday: "Was everybody crazy in October or is everybody crazy now?" as we have THOUSANDS of companies who have dropped 30-50% from their highs in the space of just 3 months.  This has come without any significant changes in guidance based solely on assumptions that I pointed out a while ago, were NOT shared by 97% of the CEOs surveyed.  As a business consultant, I look at companies from the inside, as companies, not as lottery tickets that spit out winning or losing stock bets.  I've never seen fundamentals being given less credence than I have in this downturn where even a company like BG, who couldn't possibly have a more positive story in a more positive sector, has been chopped down 40% in 40 days.

TlsVet pointed out this evening that SIGM has gotten ridiculously cheap and I couldn't agree more.  They have earning tomorrow, I think in the afternoon so we're going to go with the Jan $30s at $6.40 and risk it ahead of earning.  The company is down 65% from it's January high and has a forward p/e of 10!  Sales growth should be along the 200% line while earnings should be roughly triple last year's and the company makes their money selling media processors for IP video as well as HD TV and digital
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Sprint tanks…but some call-buyers are undeterred

Today’s tickers: S, USO, SDS, XLF, WM, BAC, C, VIX, HUM, CVH, WLP, AET, UNH

S – While most of the rest of the market bathed in a bullish lather today, a concoction of very bearish factors came to a froth in wireless telecom Sprint. The troubles began with an analyst downgrade that came after closer examination of Sprint’s latest 10-K filing, which concluded that the company faces a possible increase in wireless acquisition costs and handset subsidies. Add to that the company’s ongoing embroilment in a price war with other U.S. mobile carriers and a presentation tomorrow at a Bear Stearns industry event tomorrow, and you can color traders spooked. Today’s near-10% decline to $6.07 has put its shares at a 20-year low. The upshot was an immediate 25% increase in implied volatility to more than 90% – making Sprint one of the day’s top volatility gainers and showing about 30% more price risk to Sprint shares over the next month than they have shown historically. What interested us most of all however was the fact that option volume in Sprint scarcely bears the mark of “disaster preparedness” that one might expect from such a catastrophic drop in its share price. Instead, traders took the opportunity afforded by lower call-side premiums to buy calls at strikes of 6 and 7 for as little as 15 cents apiece – a cheap bet that all may not be lost for the most battered and beleaguered of the wireless carriers. Elsewhere, we saw directionally neutral but long volatility trades in play at the April 6.00 line, where the $1.05 cost of the straddle combination would protect the buyer in the event of a decline below $4.95 or back above $7.05. And it looks like one trader profited handsomely from the closeout of a put position at the May 7.00 line that was entered yesterday for 95 cents. With the value of puts swelling on back of today’s share price action, the 10,000-lot position was closed out today for $1.38 – yielding a 45% profit margin in the space of a day.

USO – After five successive sessions of record highs for crude oil, futures pulled back slightly on today’s Fed liquidity action. Still, it’s hard to imagine the end of the road for energy stocks, which is why we were so fascinated with today’s spike in put volume in the United…
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Zero Hedge

Enemy Of The People?

Courtesy of ZeroHedge. View original post here.

Via The Zman blog,

There has never been a time when normal people did not know the media was biased and biased in a predictable direction. For every non-liberal in the media, there were at least ten liberals. The ratio was probably higher, but then, as now, some lefties liked to pretend they were independents or some third option.

The media used to invest a lot of time denying they had a bias and an agenda, but the only people who believed them were on the Left, which had the odd effect of confirming they had a bias and an agenda.


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Phil's Favorites

A 2019 Earnings Recession?


A 2019 Earnings Recession?

Courtesy of 

Shout to Leigh!

On the new Talk Your Book – Josh Brown is joined by Leigh Drogen of Estimize, one of the leading providers of crowdsourced financial and economic data to talk about the trend in corporate profits that could potentially lead to an earnings recession later this year.

What is the thing that Leigh is seeing in the data that Wall Street isn’t yet picking up on? What segment of the stock market is most at risk? Why is the crowd smarter than the narrow consensus of Wall Street analysts?

Check out Estimize ...

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D.E. Shaw Investment Calls For Leadership Change At EQT

By ActivistInsight. Originally published at ValueWalk.

Elliott Management has offered to acquire QEP Resources for approximately $2.1 billion, contending the oil and gas explorer’s turnaround efforts have done little to lift the company’s share price. The company responded and said that a thorough review of the proposition is imperative in order to properly act in the best interests of shareholders, “taking into account the company’s other alternatives and current market conditions.” The news came only a month after Travelport Worldwide agreed to sell itself to Siris Capital Group and Elliott’s private equity arm Evergreen Coast Capital for $4.4 billion in cash and two months after Athenahealth was bought by Veritas and Evergreen for $5.7 bi...

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Kimble Charting Solutions

Gold & Silver Testing Important Breakout Levels!

Courtesy of Chris Kimble.

Gold and Silver from a long-term perspective have created a series of lower highs over the past 8-years. Will 2019 bring a change to this trend? A big test is in play!

Gold since the lows in 2016 has created a series of higher lows, while Silver may have created a double bottom.

Gold & Silver are currently facing break attempts a (1) and (2). These falling resistance lines have disappointed metals bulls for the past few years.

The direction of Gold and Silver weeks and months from now should be highly influenced by what each does as they are attempting to break above important resistance levels.

To become a member of Kimbl...

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Insider Scoop

UBS Says Disney's Streaming Ambition Gives It A 'New Hope'

Courtesy of Benzinga.

Related DIS Despite Some Risks, Analysts Still Expecting Double Digit Growth From Communications Services In Q4 ... more from Insider

Digital Currencies

Russia Prepares To Buy Up To $10 Billion In Bitcoin To Evade US Sanctions

Courtesy of Zero Hedge

While the market has been increasingly focused on the rising headwinds in the global economy in general, and China's economic slowdown in particular, while the media is obsessing over daily revelations that Trump may or may not have colluded with Russia to get elected, a far more critical, if underreported, shift has been taking place over the past year.

As we reported in June, whether due to concerns over draconian western sanctions and asset confiscations following the poisoning of former Russian military officer Sergei Skripal, or simply because it wanted to diversify away from the dollar, Russia liquidated virtually all of its Treasury holdings in the late spri...

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Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...

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Members' Corner

Why Trump Can't Learn


Bill Eddy (lawyer, therapist, author) predicted Trump's failure based on his personality, which was evident years ago. This article, written in 2017, references a prescient article Bill wrote before Trump became president, in July, 2016, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...

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Opening Pandora's Box: Gene editing and its consequences

Reminder: We are available to chat with Members, comments are found below each post.


Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.


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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...

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Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.


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).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...

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Free eBook - "My Top Strategies for 2017"



Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:


·       How 2017 Will Affect Oil, the US Dollar and the European Union


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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

Learn more About Phil >>

As Seen On:

About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

Market Shadows >>