Archive for March, 2010

Have We Entered the Twilight Zone?

Courtesy of Leo Kolivakis

Please read my latest entry and post your comments here:

http://pensionpulse.blogspot.com/2010/03/have-we-entered-twilight-zone.html

Thank you,

Leo Kolivakis





Big Picture Perspective

As Allan notes, his (seemingly drug influenced) observation that Easter weekends are often turn-around weekends for uptrending markets should be researched rather than relied upon for investment decisions. Just saying. - Ilene 

Big Picture Perspective

Courtesy of Allan 

Below the DJIA Monthly chart with proposed big picture wave count, retracement and stochastic analysis.

DJIA Monthly
 
Easter weekend takes me back to the 1980′s, "BK" (before kids) days when as part of a yuppie couples community, we used to take these days off and drive down from Atlanta to the gulf coast, the Florida panhandle.  Amid the usual suspects of substances and debauchery, I remember numerous weeks leading up to the Good Friday holiday where the market was running up, my coffers were full and these beach vacations were the best of times.  But I also remember how time and time again, the market would turn right around these holiday beach trips and whether it be a stiff ABC correction or a more serious intermediate decline, the rest of the Spring season was never as sanguine as those days leading up to this particular weekend.
 
An observation, especially filled with melancholy memories of simpler, more buoyant times, doesn’t constitute a well researched empirical case for a top, but neither can I relegate it to the meaningless nostalgia bin, especially in the light of the above chart.  The wave structure, retracement levels, overbought nature of the stochastic all come together, along with the season at hand, reminding me that a big picture bear market view is still out there to be reckoned with in one way or another. 

The Monthly Trend Model is too slow to change to be of trading value here, but the Intermediate Trends, defined by the Daily and Weekly Trends, will provide the first clues that a worst case scenario is unfolding.  Therein lies the beauty of trend following, we need only observe, identify and accept what the market gives us, a lesson decades in the making. 

*****

Check out Allan’s site, and if you wish to subscribe, Allan is offering PSW readers a 25% discount.  Click here for the discount.  - Ilene 





The Collapse of the Yen: The Party Has Only Just Started

Courtesy of madhedgefundtrader

”Oh, how I despise the yen, let me count the ways.” I’m sure Shakespeare would have come up with a line of iambic pentameter similar to this if he were a foreign exchange trader.

Those who followed me into a yen short at ¥88.5 on March 5 and held on until yesterday’s low of ¥93.25 are looking at a profit of 5.1% and a home run of 25.5% if you went with my recommended 500% leverage with a stop. If you bought the leveraged short yen ETF (YCS), you clocked 10.4% on the move from $19.25 to $21.25. It beats the hell running with the lemmings in the S&P 500, doesn’t it?

We are now within reach of my initial target of ¥95, which we could see as early as Friday. Those with hot hands who have been unable to sleep since they strapped this baby on might want to cash in there. Others who are in for the long haul can sit back, get comfortable, and dig into the first chapter of Lady Muromachi’s 1,000 page Tales of the Genji. To remind you why you hate the Japanese currency, I’ll refresh your memory with this short list:

* With the world’s weakest major economy, Japan is certain to be the last country to raise interest rates.
* This is inciting big hedge funds to borrow yen and sell it to finance longs in every other corner of the financial markets. Notice that the euro/yen cross has popped from ¥121 to ¥125 in the last three weeks.
* Japan has the world’s worst demographic outlook that assures its problems will only get worse. They’re not making Japanese any more.
* The sovereign debt crisis in Europe is prompting investors to scan the horizon for the next troubled country. With net net debt at 100% of GDP, Japan is at the top of the list.
* The Japanese long bond market, with a yield of 1.2%, is a disaster waiting to happen.
* You have two willing coconspirators in this trade, the Ministry of Finance and the Bank of Japan, who will move Mount Fuji if they must to get the yen down and bail out the country’s beleaguered exporters.

This is all why, after catching a breather at ¥95, we’re going to ¥100, then ¥120, then ¥150. That works out to a price…
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Spin City – San Andreas: Are There Signs From The Bond And Swap Spread Markets That Government Debt Risks Will Derail The Expansion?

Courtesy of Tyler Durden

Are There Signs From The Bond And Swap Spread Markets That Government Debt Risks Will Derail The Expansion? Submitted by Michael Cembalest, CIO of JP Morgan Private Bank

 

Attachment Size
Cembalest March 30.pdf 172.82 KB




March Records Fastest Ever CMBS Delinquency Deterioration In History According To TREPP

Courtesy of Tyler Durden

On top of the previously announced record delinquency rate for Fannie, here comes some even worse news out of commercial real estate, which together with record high downtown vacancy rates, should be enough to push all REITs to 1052 week highs tomorrow. RealPoint has just released its March CMBS delinquency data, according to which delinquencies hit an all time high 6%. Not to be ignored, according to TREPP this number is even worse, at nearly 8%, after the single biggest monthly spike in 30 day + delinquencies.

In February 2010, the delinquent unpaid balance for CMBS increased by another $1.87 billion, up to $47.82 billion from $45.94 billion a month prior. Aggregate delinquency increased despite a slight decrease in 30-day delinquency. The overall delinquent unpaid balance is up almost 300% from one-year ago (when only $11.98 billion of delinquent unpaid balance was reported for February  2009), and is now over 21 times the low point of $2.21 billion in March 2007. The distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 26th straight month – up by $2.88 billion (9%) from the previous month and $29.36 billion (420%) in the past year (up from only $6.98 billion in February 2009).

As Stuy Town is still current on its payment, RealPoint expects an even greater acceleration in CMBS delinquencies over the coming months:

With the $4.1 billion delinquency of the Extended Stay Hotel loan, the expected delinquency of the $3 billion Peter Cooper Village / Stuyvesant Town loan, and the recently experienced average growth month-over-month, Realpoint now projects the delinquent unpaid CMBS balance to continue along its current trend and grow to between $60 and $70 billion by mid 2010. Based upon an updated trend analysis, we now project the delinquency percentage to grow to between 8% and 9% through mid 2010, potentially approaching and surpassing 11% to 12% under more heavily stressed scenarios through the year-end 2010). This forecast / outlook is driven by the watchlist reporting of several Realpoint identified High Risk Loans from recent vintage transactions that continue to show signs of stress and are on the verge of delinquency, along with continued balloon maturity defaults from more seasoned transactions. As part of our monthly surveillance efforts of every CMBS transaction, we continue


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As GSE Delinquencies Hit All Time Highs, What About The Monolines?

Courtesy of Tyler Durden

Submitted by Tin Cup

Good post on the skyrocketing Fannie delinquencies.  What does that mean for the guys that are 20x leveraged and took the first loss piece of the most adversely selected loans of Fannie (and Freddie) during the bubble years of 2005-2007?  Why, it means that PMI, MTG, and RDN are trading at 52week highs, and their CDS is rocketing tighter, of course.  Makes perfect sense.

KEY POINTS-

  • Borrowers have been making private mortgage insurance payments for many years.  Now that the MIs face large losses, they have ramped up claim denials to 20-25%, up from virtually nothing two years ago.  Borrowers will indirectly bear the cost for the MIs not honoring claims in the form of higher borrowing rates.
  • State regulatory requirements require MI’s to be below certain Risk to Capital thresholds to write new business.  The MIs are rapidly accelerating toward the 25:1 state regulatory limits, where NO new business can be written.   Some states have voted to temporarily waive the 25:1 RTC requirement as long as the MI is in “sound financial condition.” If the insurers reach this level they are by definition not in “sound financial condition.”  States should not be looking the other way and allowing them to continue putting policy holders and ultimately taxpayers at risk. While that may buy the MIs an extra few months the companies are so levered and have such little capital that 25x turns to 100x VERY quickly
    • PMI: 22.0x
    • MTG: 22.1x
    • RDN: 15.4x (receiving $1b in accounting credit from bond insurer capital; RTC would be approx. 25x-28x without bond insurer benefit)
  • The MI business model is questionable at best and we believe that it will be increasingly viewed as such.  When the insured really needs the payment from the MIs, they will not be around to pay the claim due to their undiversified business model, modest loss reserves, and the nationwide collapse in house prices.  The MIs evolved into primarily a way to arbitrage around the charter 80% LTV limit of the GSEs
  • MIs do NOT take reserves for expected losses or for changes in the outlook.  For example, no matter how ugly the housing market outlook deteriorates, MIs do NOT take additional reserves.  They only reserve for loans that fall delinquent by 2 payments or more.  This creates a very


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HAMP to the Rescue

HAMP to the Rescue

 

Courtesy of MIKE WHITNEY writing at CounterPunch 

jr. deputy accountantLast Friday, the Obama administration announced changes to its Home Affordable Modification Program (HAMP) The most significant change is "principal reduction". By reducing the balance on underwater loans, the administration hopes to lower the number of foreclosures which have soared to more than 300,000 per month.  This looks like a plan that could work, since most foreclosures are the result of  negative equity or unemployment. If the banks and other investors agree to the terms of the program (and it looks like they will) then more homeowners will be able to avoid foreclosure, prices will stabilize, and the recovery will gain momentum. There is one drawback, however, which is moral hazard writ large.  The new program rewards the speculators who bet on dodgy investments and who’ll be able to exchange their garbage securitizations for government-guaranteed FHA loans.

In fact, it looks like that was the real purpose of the program from the very beginning. This is an excerpt from March 30, Bloomberg News:

"Subprime-mortgage securities are rising at an accelerating pace as the U.S. begins to encourage reductions to homeowners’ balances, which may lead to fewer foreclosures and a quicker end to the housing slump….Subprime-loan bonds rated AAA when created in the first half of 2006 climbed 3.2 percent last week to 49.1, the highest since January 2009, according to Markit Group Ltd.

“Senior-ranked bonds tied to borrowers with poor credit will mostly benefit after the Treasury Department said for the first time it would seek to cut the size of mortgages, reducing the likelihood that loan modifications will fail, according to JPMorgan Chase & Co., Morgan Stanley and Barclays Plc. The revised plan also supports the housing market by helping avert more foreclosures, Amherst Securities Group LP analyst Laurie Goodman said." (Bloomberg)

So, it looks like Obama’s modification program has touched-off a gold rush in toxic paper. Subprime securitizations which had been worth next to nothing, are presently the hottest item on Wall Street. Main Street’s loss will, once again, mean windfall profits for Wall Street’s hedge fund managers and brokerage kingpins. It’s a subprime bonanza! A recent interview I had with a Wall Street veteran (anonymous) had this to say on the topic: 

"It sounds like the investors in securitizations will be swapping underwater real estate for government-insured paper… I


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You Still Believe The Fed Can Stop Deflation?

You Still Believe The Fed Can Stop Deflation?
Recent history proves that the Fed’s "control" is just an illusion. 

Courtesy of Elliott Wave International

Deflated globe

Think back to the fall of 2007. The deflationary "liquidity crunch" that over the next year-and-a-half cuts the DJIA in half, decimates commodities, real estate and world markets is only starting. Almost no one believes that the crash is coming — to a large degree, because everyone is convinced that the U.S. Federal Reserve Bank, with Ben Bernanke at the helm, will never allow deflation to happen: It can just print money!

The excerpt you are about to read is from EWI president Robert Prechter’s October 19, 2007, Elliott Wave Theorist. If you find it insightful, read more of Bob’s writings in the free Club EWI resource, "Robert Prechter’s Most Important Writings on Deflation." (Details below.)

You cannot pick up a newspaper, turn on financial TV or read an economist’s report without hearing that the Fed’s latest discount-rate cut is bullish because it indicates the Fed’s decision to “pump liquidity” into the system. This opinion is so completely wrong that it is hard to believe its ubiquity.

First of all, the Fed does not “decide” where it wants interest rates. All it does is follow the market. Figure 17 proves it. Wherever the T-bill rate goes, the Fed’s “target rate” for federal funds immediately follows. That’s all there is to it.

The FED Follows the Market

If you refuse to believe your eyes, then listen to the chairman; Alan Greenspan is very clear on this point. On September 17, a commentator on CNBC asked, “Did you keep the interest rates too low for too long in 2002-2003?” Greenspan immediately responded, “The market did.” Rates were not “too low” or the period “too long,” either, because the market, not the Fed, made the decision on the level and the time, and the market is never wrong; it is what it is. If investors in trillions of dollars worth of U.S. Treasury debt worldwide had demanded higher interest, they would have gotten it, period.

Second, falling interest rates are almost never bullish. All you have to do to understand this point is look at Figure 18.

Falling Rates are not Bullish

Interest rates fell persistently through three of the greatest bear markets in history: 1929-1932 in the Dow, 1990-2003 in the Japanese Nikkei, and 2000-2002 in the NASDAQ. The only comparably


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Don’t Invest In Ridiculously-Rigged (And Thin) Markets

Here’s Karl Denninger’s must-read take on the gold market rigging story. –  Ilene 

Don’t Invest In Ridiculously-Rigged (And Thin) Markets

Janet Tavakoli has written an interesting piece over at Huffington Post related to the gold market and a potential cornering attempt:

First, let your greed overcome all regard for the stability of the global market, and overcome your aversion to illegal activities.

….

Pump up the gold story. Get your friends to tell retail investors to buy some gold every month. Get your buddies in the financial business to offer exchange traded gold funds (ETFs) that claim to buy physical gold. This will sound safe to retail investors, but in fact, the ETFs are very risky. This will serve your purpose when you are ready to start a panic. These particular ETFs will allow the "gold" to be commingled with the custodian’s gold, and the custodian can lease out the gold. Moreover, the "gold" custodian can give it to a sub custodian that the manager doesn’t know. The sub custodian can give it to yet another sub custodian unknown to the original custodian. The manager will never audit the gold, and the gold is not "allocated" to a particular investor. Since this is an "exchange traded" gold fund, investors will probably assume the gold is regulated by the Commodities Futures Trading Commission (CFTC), but it isn’t. By the time investors wake up to the probability that there is very little actual gold backing their investment, your plan will be ready to execute.

That could be a problem, right?

Zerohedge has run a piece of alleged manipulation of the market (specifically, selling short an insane number of contracts – which would obligate you to deliver – when you have no possible way to do so.)  This, however, isn’t necessarily manipulation per-se, nor is the assertion that these are "financial" (that is, we trade ‘em for money, not to actually buy or sell physical gold) assets false.  They in fact are; if I sell short a S&P 500 Futures Contract I can assure you that I do not deliver a basket of 500 stocks to the buyer if I’m right (or wrong!)

However, the elements of a scam – which could be the intended…
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Optimistic individual Initiates Mammoth Bullish Risk Reversal Play on Conseco

Today’s tickers: CNO, OSIP, HIG, FXI, JDSU, ARQL, GNW, TEVA, KO & UBS

CNO – Conseco, Inc. – The holding company for a number of insurance companies, such as Colonial Penn Life Insurance Co. and Washington National Insurance Co., popped up on our ‘most active by options volume’ market scanner late in the session after a massive bullish risk reversal was established on the stock in the January 2011 contract. Conseco’s shares declined 0.80% during the course of the trading day to stand at $6.18. It looks like one optimistic options player sold 33,727 puts at the January 2011 $5.0 strike for a premium of $0.50 apiece in order to partially finance the purchase of 33,727 calls at the same strike for $1.80 each. The net cost of the transaction amounts to $1.30 per contract. Thus, the investor responsible for the reversal is prepared to amass profits if Conseco’s shares rally through the breakeven price of $6.30 ahead of expiration day in January. The 67,454 contracts involved in the spread trump existing open interest on the stock of 48,756 lots.

OSIP – OSI Pharmaceuticals, Inc. – The outline of a slightly lopsided iron condor appeared in the May contract on OSI Pharmaceuticals, indicating one options investor expects shares of the biotechnology company to trade within a specified range through expiration. OSIP’s shares surrendered 0.85% during afternoon trading to stand at $59.55 perhaps after The Wall Street Journal reported that Astellas Pharma, Inc. is extending its tender offer for OSI Pharmaceuticals – valued at $3.5 billion – by three weeks to April 23, 2010. The investor responsible for the iron condor play essentially enacted two credit spreads, one using put options and the other calls, in order to pocket options premium. On the call side, the trader shed 4,000 contracts at the May $60 strike for a premium of $1.90 apiece, spread against the purchase of the same number of calls at the higher May $62.5 strike for $0.90 each. As for the puts, the investor sold 4,000 lots at the May $55 strike for a premium of $0.94 per contract, marked against the purchase of 4,000 puts at the lower May $50 strike for $0.62 each. Notice that the put credit spread is wider than the spread on the call side, which creates a lopsided iron condor in this case. The net credit pocketed by the trader amounts to $1.32…
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Zero Hedge

Belgian F-16 Pilot Ejects Before Fiery Crash, Gets Caught In High Voltage Power Lines

Courtesy of ZeroHedge View original post here.

A Belgian F-16 fighter jet crashed in Northwestern France on Thursday, leaving one of its pilots hanging by his parachute from high voltage electricity lines, according to the BBC

Both pilots had minor injuries after they ejected from the plane, which clipped the roof of a house and crashed in a field near Pluvinger. The pilot stuck in the 250,000 volt power lines was brought down after a two hour rescue operation by French emergency ser...



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Phil's Favorites

Buyer beware: How Libra differs from Bitcoin

 

Buyer beware: How Libra differs from Bitcoin

Recent revelations about the lack of privacy protections in place at the companies involved in Facebook’s new Libra crytocurrency raise concerns about how much trust users can place in Libra. (Shutterstock)

Courtesy of Alfred Lehar, University of Calgary

Facebook, the largest social network in the world, stunned the world earlier this year with the announcement of its own cryptocurrency, Libra.

The launch has raised questions about the difference between Libra and existing cryptocurrencies, as well as the implications of private companies competing with s...



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Digital Currencies

Buyer beware: How Libra differs from Bitcoin

 

Buyer beware: How Libra differs from Bitcoin

Recent revelations about the lack of privacy protections in place at the companies involved in Facebook’s new Libra crytocurrency raise concerns about how much trust users can place in Libra. (Shutterstock)

Courtesy of Alfred Lehar, University of Calgary

Facebook, the largest social network in the world, stunned the world earlier this year with the announcement of its own cryptocurrency, Libra.

The launch has raised questions about the difference between Libra and existing cryptocurrencies, as well as the implications of private companies competing with s...



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Lee's Free Thinking

Look Out Bears! Fed New QE Now Up to $165 Billion

Courtesy of Lee Adler

I have been warning for months that the Fed would need new QE to counter the impact of massive waves of Treasury supply. I thought that that would come later, rather than sooner. Sorry folks, wrong about that. The NY Fed announced another round of new TOMO (Temporary Open Market Operations) today.

In addition to the $75 billion in overnight repos that the Fed issued and has been rolling over since Tuesday, next week the Fed will issue another $90 billion. They’ll come in the form of three $30 billion, 14 day repos to be offered next week.

That brings the new Fed QE to a total of $165 billion. Even in the worst days of the financial crisis, I can’t remember the Fed ballooning its balance sheet by $165 bi...



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The Technical Traders

Is A Price Revaluation Event About To Happen?

Courtesy of Technical Traders

Skilled technical traders must be aware that price is setting up for a breakout or breakdown event with recent Doji, Hammer
and other narrow range price bars.  These types of Japanese Candlestick patterns are warnings that price is coiling into
a tight range and the more we see them in a series, the more likely price is building up some type of explosive price breakout/breakdown move in the near future.  The ES (S&P 500 E-mini futures) chart is a perfect example of these types of price bars on the Daily chart (see below).

Tri-Star Tops, Three River Evening Star patterns, Hammers/Hangmen and Dojis are all very common near extreme price peaks and troughs.  The rea...



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Kimble Charting Solutions

India About To Experience Major Strength? Possible Says Joe Friday

Courtesy of Chris Kimble

If one invested in the India ETF (INDA) back in January of 2012, your total 7-year return would be 24%. During the same time frame, the S&P 500 made 124%. The 7-year spread between the two is a large 100%!

Are things about to improve for the INDA ETF and could it be time for the relative weakness to change? Possible!

This chart looks at the INDA/SPX ratio since early 2012. The ratio continues to be in a major downtrend.

The ratio hit a 7-year low a few months ago and this week it kissed those lows again at (1). The ratio near weeks end is attempting to...



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Insider Scoop

10 Biggest Price Target Changes For Friday

Courtesy of Benzinga

  • Credit Suisse raised IHS Markit Ltd (NYSE: INFO) price target from $68 to $76. IHS Markit shares closed at $67.75 on Thursday.
  • Wedbush boosted Restoration Hardware Holdings, Inc (NYSE: RH) price target from $170 to $185. RH shares closed at $169.49 on Thursday.
  • Mizuho lifted Seagate Technology PLC (NASDAQ: STX) price target from $46 to $50. Seagate shares closed at $52.94 on Thursday.
  • UBS raised the price target for Weight Watchers Intern...


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Chart School

Crude Oil Cycle Bottom aligns with Saudi Oil Attack

Courtesy of Read the Ticker

Do the cycles know? Funny how cycle lows attract the need for higher prices, no matter what the news is!

These are the questions before markets on on Monday 16th Aug 2019:

1) A much higher oil price in quick time can not be tolerated by the consumer, as it gives birth to much higher inflation and a tax on the average Joe disposable income. This is recessionary pressure.

2) With (1) above the real issue will be the higher interest rate and US dollar effect on the SP500 near all time highs.

3) A moderately higher oil price is likely to be absorbed and be bullish as it creates income for struggling energy companies and the inflation shock may be muted. 

We shall see. 

...

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Biotech

The Big Pharma Takeover of Medical Cannabis

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

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

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.

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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...

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