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Thursday, December 1, 2022


The Worst-Case Scenario: Getting Real With Global GDP!


That is the per capita average GDP for the 6Bn ape-like creatures on this planet who have pockets and purses.  Of the still hairy and pocketless apes, there are only about 1M left and they are mainly prisoners so we won’t be worrying about them but it would be nice to consider the plight of our ancestors once in a while…  Anyway, so 6Bn of us fill in those last 3 images in the planetary labor pool with the vast majority of us STILL FARMING and, of course, a select group of us are still hunting and gathering and contributing very little to the GDP

None of our problems are new – as noted in this 2005 cartoon:

The United States of America with it’s highly evolved population of shopoholics has a per capita GDP of $46,381 – VERY IMPRESSIVE but we rank 6th!  Brunei does a little better than we do and Singapore is up at $50,523 (so let’s hear it for corporal punishment) and Norway (one of my top choices of countries to flee to when it all hits the fan) is at $52,561 but Luxembourgh ($78,395 – banking) and Qatar ($83,841 – oil) simply trounce us in earnings power per person.  For those of you who like to think Capitalism is all about keeping score – they must be better than you because they make more money, right?

Below the US, per capita GDP drops off fairly quickly.  Rounding out the top 10 are Switzerland ($43,007 – watches and more bankers), Hong Kong ($42,748 – don’t tell China!), Netherlands ($39,938 – legal drugs!), Ireland ($39,468 – free beer when on wellfare!) and Australia ($38,911 – beer comes in oil cans plus gigantic bouncing rats).  20th on the list is Germany at $34,212, Greece is 25th at $29,882 (but not for long), 30th is South Korea at $27,978, 40th is Slovakia at $21,245.  Lithuania comes in at 50 with $16,542 (1 ahead of Russia) and it steadies out there with emerging market star Brazil in 75th place with $10,514 and, keep in mind – that is where you FINALLY get to the average leverl of economic activity for the world. 

Another BRIC in the global wall is mighty China, with a per capita GDP of $6,567 for each of their 1.2Bn persons and India’s Billion people average out at less than half of that, at $2,941, ranking 128th and still ahead of 53 other nations like Congo (181st, last at $332), Zimbabwe (180 – $355), Afghanistan (169 – $935 per person yet we can’t find one 6 ft – 4 inch rich guy on dialisys?), Ethiopia (167 – $954), Haiti (157 – $1,339, just 750 miles from Florida) and Iraq, who rank 124th at $3,570 per person, even after we have spent $1 Trillion (10 x their entire GDP) "Nation Building." 

The combined population of our top 10 nations in GDP is under 400M add another 600M EU and Japanese people, who have per capita GDPs of about $30,000 so there’s about a billion of "US" (1Bn) in the top 17% with an average per capita GDP of $37,000 and "THEM" in the bottom 83%  (5Bn) with an average per capita GDP of $5,000

Now, let’s assume that tomorrow the entire global economy collapses and all the banks in Europe, the US and Japan all fail at once and the government can’t stop it and all assets are wiped out and our economies grind to a halt and 50% of us are unemployed on Tuesday.  Would you stop eating?  Would you stop using electricity?  If the answer to those questions is no, then you are already going to be better off than Nigeria, where many people are forced to do without one or the other or both bu still have a $2,249 per capita GDP.  How about clothing – will you wear that?  Will you take your kids out of school or still send them?  Will you no longer seek medical attention when you are sick?  How about driving?  Plan on giving it up?  Heat?  Air conditioning? 

Let’s assume, for argument’s sake, that we (US, Europe and Japan) all fall to the level of the Mexican economy, ranked 60th with a per capita GDP of $13,628.  What would that do to the $60Tn global GDP?  Dropping our 1Bn privileged asses from $37,000 to $13,600 would knock $23.4Tn off the global GDP, about 1/3.  So, if we call that a "worst case" scenario (for us, the people in Nigeria could care less whether or not you get to see Avatar in IMAX or how big your flat-screen TV is) then what is the logic of dropping the stock market 66%?  You will still brush your teeth (PG, JNJ), you will still eat Mac and Cheese, probably more than before (KFT), you will need to wear sneakers to stand on the bread lines (NKE), the police will need riot control gear (TASR), they will probably GIVE AWAY TVs and electricity to calm people down (SNE, EXC).

Will we no longer fly in planes (BA) or communicate on the web (CSCO)?   We’ll probably make phone calls – Even Dorothy had a phone in depression-era Kansas (T, VZ)!  We might not buy homes anymore but we’ll still need to fix them (HD) and when we have headaches, we will still take a pill (MRK, PFE) and the barter system is a fun fantasy but even Nicaragua, ranked 133 with a per capita GDP of $2,627 per person has 30 Walmarts, so there’s another stock we can stick with as well as McDonalds, where I hear the gazelle-burgers are wonderful in Africa.  

Will we give up soda (KO, AA) or entertainment (DIS) using computers (HPQ, IBM, INTC) or stop using fertilizer and farming with machines (DD, MON, CAT)?  Unless we abandon the buildings then UTX’s Otis division should still find work.  MSFT may have trouble if there are nor rich people to choose Windows over Linux and XOM and CVX may suffer from soft demand.  We’re writing off Dow components BAC and JPM in our global implosion but GE will likely survive as will MMM (where would we be without Post-Its?) and even farmers may want insurance through TRV.  So that’s the Dow, which is already 30% off the 2007 top yet the global GDP is UP $4,000,000,000,000 (7%) since then. 

We can assume that our 2007 highs were based on the very false assumption that we would grow the global GDP from $55Tn in 2008 to $61Tn in 2009 to $68Tn in 2010 to $75Tn by 2011 so this year’s $60Tn is a nasty 13.33% disappointment and let’s assume that over the next 3 years we SHRINK the GDP of the planet earth all the way back to $45Tn (down 25% from here).  Contrary to any historical trends observed in War, Famine, Depression or even under the triple threat of Nixon, Ford and Carter – we have NEVER contracted for more than 2 years in a row…  Let’s give the bears a bone and say we will grind down and down and down until the whole planet looks to Mexico for economic leadership.  Even then, we have a $45Tn global GDP! 

$45Tn is actually an average of just $7,500 for 6Bn people, that would put us down in the low 90s with Ecuador, Belize, El Salvador, Bosnia and Herzegovina – Borat would be laughing at us (Kazakstan is 70th)!  So, if you follow the bearish doomsday scenario to it’s obvious social conclusion – this is what they expect to happen to America, Europe and Japan when they tell you the Dow is going back to 7,500 – or perhaps even lower!  If you don’t believe that you will be skinning your own game for clothing in 2011 – then perhaps it’s not such a bad idea to be a bit of a contrarian and do a little bottom-fishing here

I am NOT advocating a BUYBUYBUY premise, we are still 80% in cash (we got out at the end of April) but we have begun, at Dow 10,200 to begin scaling into positions in companies like the blue chips listed above.  We are doing it in scaled amounts in option spreads that obligate us to buy another round that would put us in twice the current position at an average price 20% or more below the current price.  That means, at approximately Dow 8,000, we will trigger our second round, deploying another 20% of our cash to buy twice as much stock in T, PFE, JNJ, MCD, UTX, KO… 

At that point we will very likely DO IT AGAIN as we will have not only 60% of our cash left, but a substantial gain from our Disaster Hedges, which pay us a 500% return if the market doesn’t recover from where it is right now.  Not only that, but, at the point where we would double down at 8,000, we would take another round of disaster hedges using the original principal from the first disaster hedges so if we hedge with $5,000 (5% of $100K) in round 1 and use $20,000 to buy stocks at a 20% discount, then if the market falls 20% we still have $20,000 worth of stocks, $75,000 in cash AND $30,000 from our disaster hedge!

At that point we double down on our stocks so now we have $40,000 worth of stock, $80,000 in cash and another $5,000 in disaster hedges.  If the CNBC doom and gloom crowd are right and the markets fall another 20% (Dow 6,400), we end up with another $30,000 from our disaster hedges, and we again double down on our stock (now down 40% from today’s price) and we end up with $80,000 worth of stock and $70,000 in cash AFTER THE MARKET FALLS 40% – SO BRING IT ON BEARS! 

If at any point the market turns up, we make at least 20% on our stocks (it’s built into the strategy) – providing, of course they generally stick with the indexes.  That’s why we prefer blue-chips during a crisis – aside from the inherent brand value, they tend to stick with the broader market and often lead recoveries.  I don’t think we will get a chance to buy that much stock that low.  It would be great if it happens (great for us, sad for the planet) but I don’t think they can panic people to sell stocks at the clearly irrational "Wolrd will end tomorrow" pricing we got in March of 2009 but we try to never underestimate the stupidity of the average investor

I gave a similar speech to this one in February of 2009 but we have a lot of new Members since then and I want you to understand exactly what I mean when I say things are undervalued so we can be prepared to act if the opportunity arises.  Certainly they can go much lower – half the stock on the market are still over 100% higher than they were a year ago but, on March 6th of 2009, I was POSTIVE it was the bottom and I pounded the table and then I did say BUYBUYBUY using some of that cash to make more aggressive plays and we got in at what we thought, up unitl two weeks ago, was a once-in-a-lifetime opportunity for long-term investing. 

"Long-term" turned out to be just over 12 months as we took our 100% plus gains off the table and our non-greedy exits have already been rewarded with 20% discounts to buy back the same stocks we loved back then with hedges that protect us all the way to 40%.  Should we wait for 40%?  What if 40% never comes?  What if the MSM doomsayers are wrong?  Since we have a plan that works in either direction, we’re sure not going to idle all of our cash for no reason – certainly not at today’s interest rates

Well, opportunity may be here again so let’s ignore the BS and prepare ourselves for some real shopping opportunities.  The world will not end tomorrow and, even if the Western World drops back to the stone age, somebody in China will still want to put a diaper on their baby tomorrow morning and, one day, our stocks will recover!  Plan the trade and trade the plan and we will be able to go out there and, not only shop with confidence, but have fun doing it! 

Happy hunting,

– Phil



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Good Morning, computer information,
Last Friday my computer started auto refresh on this site and was unable to read email, it locked up every time I tried and worse yet took 10 minutes to close. Cool until it did it when I was trying to read, then again and again. This is not a good idea and to the person who said he is wearing out his F5 key, there is another way that I mostly use, klick the refresh with your mouse because you most likly have your hand there to scroll, on explorer it is the circle up and down arrows at the top of your screen. The problem was on 32 bit explorer and I have 64 bit also a spy glitch came from windows live that I wasn,t using, don’t like the intrusion as much as pop ups. Spybot couldn’t correct/fix or imunize everything even under administrator control. The solution was uninstall explorer, reinstall, update, and uninstall all windows live programs through the control panel because not using it is not enough. Other programs didn’t even detect a problem. This and many more situations is why I posted JRW’s system was being overexposed. All this and 8 days in March with an IMAC apple that was returned infected. Apple advised infecttion detection but the truth is I erased everything, whatever their maximum was, took 18 hours, reformated, partitioned, reloaded all from CDs, and it didn’t work 3 times once with apple tech on the phone. It seems to me Apple is too big, they are now being attacted by hackers and ufortunate for them have no experience dealing with this. They are under unthinkable presure from this, ipad problems, and lost iphone sales because of only through AT&T plus some people don’t like touch pads. Because of a bad tremor I can,t use them without constant mistakes. I was invested in apple last year but now out, my oppinion is this is not a time to buy. Some members are fixated with this stock and refuse to listen to warnings. As a member I feel it is my part to report what I know is true and a reminder I did computerize this contry until I saw problems that are reality today. As Phil always, please be careful out there.

I read it twice.  Not sure I get your point.

Phil: with regard to the TNa jan 35/55 spread: closed 1/3,

TNA jancallers55: had sold those for 15$, now closed 30% for 7$, do I aim for getting 15$ again once market moves up: at what point do I cover those again?

The point: DOW 22k in 2015

 Phil’s point ?    The market will go up….and the market will go down….repeat/repeat/repeat………….if you are properly positioned…………….who cares?     I’ve always been perplexed by the attention paid by everyone out there as to whether the market is going up or down.   It’s interesting to talk about but irrelevant I think to the experienced investor.   Most people (not us) actually believe that if the market doesn’t go up you can’t make money in the market.  Of course, we know otherwise.  We also know that you can position yourself for both eventualities.  I actually relish wide swings in the market as it fits my trading style.  Even with specific stocks, I love wide swings.  I’ve been in and out of GOOG for the past 2 weeks peeling off cash with each move up, and down.  When the market tanks I load up on TZA and profit from it.  When it goes up I make money on AAPL and other longs.  So give me volatility!  Give me uncertainty!   Give me movement in the market!   Direction?  Who cares?   

Phil: For those of us that are new members who have been deploying our 20% cash the last week and have not yet bought disaster hedges, how would you adjust the following spread to protect the 20K in buy/writes with EDZ at $53?
" With EDZ now at $44, the 2012 $70 calls are very overpriced at $15, especially since you can buy the 2012 $45s for $18.50.  Even paying $3.50 for this spread is not at all terrible and you can JUST do that and sit on your $21.50 upside (615%) from a spread that’s currently at the money or you can drop your net down to $1.50 by selling 1/6x the 2012 $35 puts at $13.50.  I like this play at 12/2 because you are collecting $2,700 against $1,200 in net margin and buying $30,000 worth of upside protection for $4,200 so net $1,500 for the whole play."

Phil – great read. I think many folks miss the fact that we have a great opportunety ahead of us and spend too much time fretting over the minute to minute and day to day fluctuations. I just hope I don’t screw it up.

Phil: my subscription is paid to early August 2010, as i mentioned before, I will be overseas for quite a while: will you permit putting my subscription on hold from early August and retain same pricing for me when I reactivate ?

A little cold water to the face every now and then never hurts.  Thanks for helping us newbies keep perspective.

Phil: reading your worst scenario is painful of course, I used to develop for our company similar scenarios in order to do strategic planning. Well done.
You say: we never contracted for more than 2 years, we also never before had such MASSIVE problems.
Recently I put some $ into INTC,MRK,GE, and  still have  from past, WMT,VLO, MDT, PGH, SPWRA,
but I am low on hedged (hedge is not same as DIA put insurance ???).
The only hedge is a TZA jan4/12 spread.
Question: 1) Stocks: are they ok and which other 2-4 should I keep an eye on ? HD, MMM, PG maybe.
2) Your suggestion is a 5% hedge: what other next to the TZA hedge should I consider ?
TXS for answer.

My take on all recent posts is as I believe the market will rebound before retreating more or up down up down. My question is if we sell into the excitement and clear all longs what about the buy sell puts and calls for Jan 11 or 12, clear them hold them? There are 3 plays I don’t understand and have not found information on, Mattress, Butterfly, and Condor, Please recomend where to look. Thanks

shadowfax – I have owned and used Macs for 26 years (for real). I am sorry you had a problem with your first and only Mac, but I cannot get behind your thesis regarding Apple after so very many years of customer satisfaction. Apple remains my favorite company for products as well as personally a very lucrative one for investing.
On a related issue, I have owned and used many PCs, but the problems that I have had with them over the years are way too innumerable to list.

I am very aware of apple loyalty. In fact I used apples in the 1980’s. During the 90’s doing our busines installed sattelite internet systems that required PCs. That changed when I closed after my wreck in 2001. I didn’t like 98, hated ME,  XP was Ok at first, and Vista sucked. I waited till this year to buy the new apple with parallels running windows for my CAD programs wich wouldn’t run on the mac 2 years ago. There were many things I liked about the mac but safari would not stream stock quotes and never liked firefox. Although your could run 4 screens in 4 corners, they were more cumbersome than many icons on the taskbar which 1 click pulled up and switched control and the size was then bigger. The virtual machine was was not for me couldn’t be shut down on parallels making circut design imposable. My other information seems to be disbelieved by all apple users but 1 Apple really does recomend protection now 2 admitted they now get infected 3 couldn’t shut off the virtual machine on windows without stopping all online with the apple apps. 4 could not fix the infection weather apple or windows caused. 5 refused anything but a 15% restocking fee 6 Victor who invented the mobil sound and iphone has fallen from any contact. I worked for Raytheon Data Systems when similar warning signs came along and 1 year later went out of busiiness. The Data division was the smallest we mostly did govt work and they could do this. Apple can not do that because this is all they do and like raytheon is not going BK but I see red flags. I made plenty on apple until April and got out. I made a 3 banger on Compact computer around 1986 in amonth and my best ever on segate disc drives shorted the next year 1900% in a week. Where are they today? I don’t love Windows7 but its the best never crashing. Apple is the only company I know intimately, loved, but see it as I do. Buyer beware I’m not an insider and this is the only discussed company I feel compelled to report on. Phil might recomend spreads but I will not play them now.

I Might consider shorting apple if they show any more red flags but the loyalty is beyond everything ever!

Yeah shorting apple is like shorting gold; you might be the poorest guy who is right on the fundamentals.

Fundamentals are great until they aren’t! Hummers were the thing even CSI now China doesn"t want them! What goes up usually goes down, think about the great Microsoft and the other great Bill! Not playing gold now either.

 shadowfax……….You want to short AAPL?   How many calls will you sell me?  🙂 

 What do you guys think of the following play on INTC.  
+100 INTC $21.00
-1 JAN11 21 PUT $2.50
-1JAN11 21 CALL $2.25
For net 16.25/18.65

0 now I am only saying I will not buy them either now! Like I said the loyalty is scary, books are good but suicides in China. I understand the loyalty to the product but we are investors our loyalty should be profit and if you read other posts they did me well until April and now I"m out. GOOD LUCK!
I don’t understand the TNA thing either.

 Saw a blurb on the news tonight that Hillary Clinton said Iran was likely to "pull some stunt" this week. I have no idea what that might be, but it sounds like a GREAT reason to get short in a hurry. 

To all baseball, hotdogs, and APPLE pie,
I design build and repair amps, peramps, anything, including computers if I can get my reasonably priced helper to do what I can’t. I repair Victors stuff, the apple guy, right now I have a Debut Amp that went out in flames, no kidding. It will play again, I have the parts in stock. I well bet anyone who follows this site that I am the only ones who runs computer automated design, CAD programs on their apple or PC. I also am the only one who fixed 2 dells and a HP computer recently, or removed a spy glitch on 32 bit explorer on a new 64 bit win7 system. I wanted to tell all what most don’t have a clue and warn of the actual red flags that caused me to sell. Buyer beware of the stock not the machine. I also asked if anyone knew of a good question and answer book on windows 7. No answer = noone knows, enough said. I have sub rules like greed kills, not speed, when in doubt get out and why I took a loss on a quite expensive IMAC, 3 strikes your out, take a small loss, never go down with the unsinkable titanic. That is why I joined and this is the only red flag reported by me along with too much talk about JRW’s system. Apple guys shoud buy spy and malware protection!

Phil: wrong I not only read but print out your answers.
When I ask again, its always to make sure I got it right. At least I am not as wordy as many other commentators. It often deals with the same subject but I want to overcome my shortcomings.

Doesn’t matter what an individual thinks about markets, it’s what forced liquidation does to markets that concerns me. Typing this on an iPad!!! Love love love it 🙂

 I understand that everyone is talking about real stories and broad subjects, but i was hoping i could get a few opinions on a question. I just inherited 10000 dollars and placed the entire amount into a separate thinkorswim account from my normal ‘everyday’ trading account. I am looking for some ideas on some spreads that could be made to generate or accumulate a little extra cash every month. The extra cash will be used to reinvest the following months. Thanks, Collin 

Phil: I ask only as I did not see a response.

PhiL; by the time Friday was over, I could not see a comment, I just went back and I found you comment I was looking for. TXS,

The AFL JAN11 35 PUT might trade higher than $5 if we open lower on monday.  Anyone else thinks this looks like a good entry?

Phil – do you like oil at 70 or do you think I should wait until europe opens (hopefully euro falls more and oil falls even further) and look to buy at a lower price?

If I can sell the AFL JAN11 35 PUT for $5+ on monday then I am considering the following trade.   Sell 2 PUT for $1000 credit.  Hedge with 4 XLF JAN11 13/11 PUT verticals for a total of $228.  The two short puts lower my buying power by a total of $600.  Using some slightly fuzzy math the last time AFL was at 35 the xlf was at 12.  So, there appears to be a slilght chance that the puts will expire worthless but the put verticals expire in the money.  So, the goal here is to collect $770 against a total buying power reduction of $830.  With a worst case scenario of owning AFL at net 27 ish in January at wich point it has a 4.2% dividend.  
AFL trades like a financial stock and doesn’t really correlate well with the either DIA or SPY that is why I chose to hedge with XLF instead.  So, come Jan

Phil… I have a weekend question – I have been following SNDK, and like them long term. I placed an order for a Buy/Write that should fill at the open. Bought stock, and sold a short straddle – Jan 45 p&c for a 38% discount. Do you like this play? Thanks!

Phil… I followed your thoughts on Friday re FXP and bought some calls… Looks as if this might be tracking your projection.

ShadowFax:  I don’t want to draw your ire, but your posts are non sequitur, impossible to follow and meaningless to all but yourself.  Before you post, please read what you have written and imagine someone else reading it without knowing what you’re thinking, implying or suggesting.  On the other hand, if I draw your ire, I don’t really mind.

Phil,  I love you but commmmme on:  BP is only interested in extracting 10,000 barrels a day (less than a million $$ a day) to offset a clean up and untold liabilities in the billions.  A reasonable person just can’t buy that.  Of course that doens’t mean they are not evil, but what is their primary motivating factor, profit?  So they want it capped of without production yesterday!

Being on the west coast, i guess everyone on the east is getting some sleep.  Me, I’m getting up early to go fishing on Icehouse Lake, off highway 50, to see if I can get some trout.  I plan to be on the lake by 6:00 and back home before market close.

Being on the west coast, i guess everyone on the east is getting some sleep.  Me, I’m getting up early to go fishing on Icehouse Lake, off highway 50, to see if I can get some trout.  I plan to be on the lake by 6:00 and back home before market close.

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