Archive for 2010

Guest Post: James Madison On Quantitative Easing

Courtesy of Tyler Durden

James Madison on Quantitative Easing

By JM

This isn’t a “call to action”.  Nor is it a brow-beating for those who care about the political institutions of this country.  It is just an indication that when a national/global economy toilet-bowls there are neither easy nor satisfying answers.  The powers that be are going to do what is necessary to prolong their survival.  This is applies very generally.  You can see this in the source materials of democracy, the original material.    

When it comes to the framing minds of the United States of America, you can keep that ideologue Jefferson.  The real genius was James Madison:  pragmatic and driven by strategic reasoning married to direct observation.  The whole structure of governance depends on his notion of checks and balances.  He also had some things to say about monetary policy in extreme circumstances.

“If the circulating medium be a municipal one, as paper currency, still its value does not depend on its quantity.  It depends on the credit of the state issuing it, and on the time of its redemption; and is no otherwise affected by the quantity, than as the quantity may be supposed to endanger or postpone the redemption.”

December 19 and 22, 1791.  Freneau’s Philadelphia National Gazette

In Madison’s case, he was referring to the “redemption” of a paper certificate to gold.  As I understand it, money at the time was a bearer bond that didn’t accrue interest.  Upon maturity it could be redeemed as a claim on gold or silver.  Many such currencies circulated in Virginia in Madison’s time.  Mid-1700s excavations and documentation indicate that just about any currency was accepted in colonial Yorktown:  1615 sixpence Bermuda “Hog” money, 1762 Mexico silver reales, 1762 Dublin half-pennies, 1722 Ireland Coppers, 1764 Prussian “Frederick the Great” silver thalers.   Today the concept is more general… redemption of a paper certificate for goods and services with instantaneous maturity. 

“Being engaged in a necessary war without specie [gold—JM] to defray the expense, or to support paper emissions for that redeemable on demand, and being at the same time unable to borrow, no resource was left, but to emit bills of credit to be redeemed in future.”

December 19 and 22, 1791.  Freneau’s Philadelphia National Gazette

Queasing was…
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Swing trading virtual portfolio – week of May 17th, 2010

This post is for live trades and daily comments. 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

 

Optrader 





FT Says Volcker Rule, Given Up For Dead, Is Likely To Pass

Courtesy of Tyler Durden

When Zero Hedge first wrote about the adverse role of prop trading in capital markets, long before it was a mainstream issue, which in turn incited the response of one Lucas van Praag, in which they assured us and our readers that there were never any issues with Goldman’s prop trading desk and that all concerns about prop trading are misplaced. A few months later one of the luminaries of modern finance picked up the Zero Hedge banner and proposed a rule that would end banking prop trading for ever, in essence overriding Mr. van Praag explanation. Yet for the past three months most had left the Volcker Rule for dead, after the banking lobby had once again bought a two year full recourse lease on Obama and his cronies. Until the last two weeks, when first on May 6 we saw what happens how an entire market, gripped in computerized gambling and speculating can break in the span of a few minutes, without doubt facilitated by the banks’ prop operations, and also when we saw that the big 4 banks had monopolized prop trading to such an extent (and disingenuously masking it as flow trading: yeah, right, flow trading with a VaR of $150 million… better luck finding greater idiots next time) that none had a losing day, in essence making Madoff’s ponzi scheme, with its worse “win” track record a joke in comparison with the ponzi that the market has become. Which is why we read with great satisfaction in the FT that the banking lobby’s power is slipping at a critical time: this week the Volcker Rule will be voted on by the Senate, and it may very well pass, despite the “cornered rat” response by the banks. As the FT notes, “the political mood is such that a straight vote on derivatives would be close and the Volcker Rule would be likely to pass.” Should the Volcker Rule pass, this will be the beginning of the end for the current casino capitalism system that has gripped Wall Street. And don’t be surprised to see a 10% drop in the market as a last ditch self defense mechanism by the primary dealers.

More from the FT, which also discusses the Blanche Lincoln’s derivative reform proposal:

The derivatives change, which faces a groundswell


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Weekend Reading – Now What?

We had a totally exciting week last week!

I was busy this weekend so no Wrap-Up but I did write about 5 pages of commentary under Sage's $1,000,000 Virtual Portfolio article regarding virtual portfolio allocations and scaling strategies - all Members should read that!   We were discussing our Disaster Hedges as well which are all well in the money but hardly a double in the bunch so far, which is actually fantastic news if you haven't entered them yet as you can enter these plays now and still do great if EITHER the market continues lower OR the VIX calms down since it's the high VIX that is keeping us from making big money.  These are October hedges so no one expects them to pay off this early but the fact that you can still get in them even after this dip is a nice break if you intend to start getting bullish and want hedges

We took shorter-term hedges for more aggressive traders during the last week of April and those, of course, are up very nicely like: 

  • EDZ June $38/44 bull call spread at $2.80, now $3.50 - up 25%
  • EDZ June $35 puts sold for at $1.25, now .70 - up 44% (pair trade)
  • FAZ July $12/16 bull call spread at $1.10, now $1.35 - up 18%
  • FAZ July $10 puts sold for .70, now .50 – up  28%
  • IYR May $52 puts at $1.30 (fell to .79), now $2 - up 54%
  • OIH May $131 calls sold for $3.45, now .05 – up 98%
  • OIH May $131 calls sold for $3.90, now 05 – up 99%
  • QID May $16 calls at .32 (fell to .27), now $1.27 – up 296%
  • QID May $15 puts sold for .32 (rose to .37), now .02 - up 94% (pair trade)
  • QID June $14/16 bull call spread at $1.15, now $1.50 – up 30%
  • TBT Sept $43 puts sold for $1.50, now $3.90 – down 160%
  • TBT Sept $43/48 bull call spread at $2.60, now $1.55 – down 36%
  • TZA June $6 puts sold for .70 (rose to .94), now .74 - down 5%
  • UGL Oct $49/54 bull call spread at $2, now $2.50 – up 25%
  • GLD March $90 puts sold for $1.20, now $1.40 - down 17%


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James Galbraith On Economic Theory As A Disgraced Profession

Courtesy of Tyler Durden

James K. Galbraith: Why the ‘Experts’ Failed to See How Financial Fraud Collapsed the Economy
By James K. Galbraith, AlterNet
Posted on May 15, 2010, Printed on May 16, 2010, first posted on AlterNet

The following is the text of a James K. Galbraith’s written statement to members of the Senate Judiciary Committee delivered this May.

Chairman Specter, Ranking Member Graham, Members of the Subcommittee, as a former member of the congressional staff it is a pleasure to submit this statement for your record.

I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis. Concepts including “rational expectations,” “market discipline,” and the “efficient markets hypothesis” led economists to argue that speculation would stabilize prices, that sellers would act to protect their reputations, that caveat emptor could be relied on, and that widespread fraud therefore could not occur. Not all economists believed this – but most did.

Thus the study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students. Economists have soft- pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now. At a conference sponsored by the Levy Economics Institute in New York on April 17, the closest a former Under Secretary of the Treasury, Peter Fisher, got to this question was to use the word “naughtiness.” This was on the day that the SEC charged Goldman Sachs with fraud.

There are exceptions. A famous 1993 article entitled “Looting: Bankruptcy for Profit,” by George Akerlof and Paul Romer, drew exceptionally on the experience of regulators who understood fraud. The criminologist-economist William K. Black of the University of Missouri-Kansas City is our leading systematic analyst of the relationship between financial crime and financial crisis. Black points out that accounting fraud is a sure thing when you can control the institution engaging in it: “the best way to rob a bank is to own one.” The experience of the Savings and Loan crisis was of businesses taken over for the explicit purpose of stripping them, of bleeding them dry. This was established in court: there were…
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On Contagion

Courtesy of Bruce Krasting

In my neck of the woods when you need some stonework done you hire Ecuadorians. They know their cement and have a good eye for laying up stone. They also work weekends. Not more than one in fifty of these workers are here legally. I had an interesting discussion with the mason I use.

He is 30. Been here for six years. Works six days a week. Some years ago he put a nest egg together of $20k. He used that money as a down payment on a two-bedroom apartment back in Quito, that cost him $80k. He got a dollar mortgage on the $60k balance and rented the apartment to a government worker for $400 a month. The rental makes him net cash flow positive on a monthly basis. A smart investment for a guy looking to go back home someday. But he has a problem lurking. He is at risk to contagion. I doubt that he understands that. But he does know he has a big FX risk in front of him.

His words:

“The government will be forced to stop the dollar as the currency. When this happens the rent money I receive will be worth much less than the $400 I get now and my debt is in dollars.”

Some background.

Ecuador dollarized its economy in 2000. This step brings immediate benefits to the country involved. It has the impact of reducing inflation, it increases the countries ability to borrow from external creditors and the predictability of a stable currency helped encourage domestic investment/growth.

Ecuador is in that sense a bit like Greece. It tied its currency to a horse that at first dragged it ahead, but ultimately the reality of a weak economy tied too closely to a strong one leads to a blow up.

Ecuador is already a pariah in the international financial community. They have defaulted on their debt twice in the last decade. Most recently in December of 2008 when they stopped payment on $3.8 billion of bonds. in June of 2009 they bought in most of the debt for pennies on the dollar. At the time I was surprised, Ecuador had reserves in the bank. There was no economic need for the default. This was about politics:


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My Interview with MMNews, Germany

Courtesy of smartknowledgeu

Lars Schall of MMNews Germany has recently interviewed many outspoken critics of the inner workings of our global financial system including former Federal Housing Commissioner and Solari Inc. President Catherine Austin Fitts and Associate Professor of Economics and Law at the University of Missouri, Kansas City (UMKC) William K. Black. Below is my recent interview with Mr. Schall.

 

“We Don’t Need Central Banks,” By Lars Schall


Mr. Kim, in your point of view our current fiat money system does not only belong to the root causes for the financial/economic crisis we’re going through, but also that it is fraudulent per se. Why so?

 

Well, the reason I believe it’s fraudulent is because our current money system is a system that creates money as debt. If we had no debts in our global monetary system, no money could exist. That’s a fairly ludicrous concept if you think about it. It’s also a system in which central banks are allowed to print money – and when I say “print money” I use this term very loosely, because the predominant amount of money today is created as digital debits and credits. So when we think of fiat money, most people think of paper money, but in reality most paper money doesn’t even exist. It’s just digital credits credited from central bank to regional banks to commercial banks and then to the various creditors and debtors in the system. So there’s virtually zero labour that’s being performed and banks charge consumers interest on this absence of labour. Centuries ago, we used to call that usury and fraud. Today we just accept it as the way the system works.

 

Do you believe that a gold standard could have worked given the real economic growth?

 

I don’t see why not. The arguments against a gold standard are mostly propelled by bankers that want the status quo and fraud to continue. There’s nothing about a gold standard that would hold back economic growth. In my opinion a gold standard would keep money honest. If we look at some of
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Reindexing The Unemployment Rate By America's Population Growth Yields Some Ugly Results

Courtesy of Tyler Durden

One of the more peculiar phenomena in the current Great Recession has been the persistent drop in the Civilian Labor Force Participation Rate, after averaging around 66.5% for the past 20 years, in the past 18 months it has plunged, and despite a marginal improvement over the past several months, is still at 65.2%. This is counterintuitive when one analyzes the data side by side with the overall civilian population in the United States. An indexed chart, using the January 2000 level as a baseline demonstrates that while the US population has been climbing at a fairly steady arithmetic growth rate, the civilian labor force, which should track the changes in the actual population, has been behaving in an erratic pattern, having more to do with BLS data interpretation and the nuances of the business cycle than demographics. Which is why when reindexing data for nominal changes in the US rate of population growth, yields some troubling variations from the just disclosed 9.9% unemployment rate. Basing the adjustment to the unemployment rate on nothing but a statistical regression to the growth of America over the past ten years, would yield an unemployment rate of 12.7%. More troubling is that the underemployment rate would be a number far higher than the 17.1% disclosed for April. According to our calculations, a reading closer to 22% would be more appropriate to represent the level of real joblessness in the US. A number, which is higher than the corresponding metric in austerity-ridden Spain.

First, we demonstrate the labor force participation rate. The most recent disclosed reading of 65.2% is materially different from the 20 year average of 66.4%.

Of course, the US population isn’t static. It grows constantly, and according to the BLS, the Civilian Noninstitutional Population has increased from 211.4 million in January 2000, to 237.3 million in April 2010. This is a 12.3% change, which is nearly 50% compared to the change in the Civilian Labor Force, which has increased from 142.2 million to 154.7 million, or an 8.7% change.

Showing this graphically yields the following chart: an indexed comparison of these two very interlinked series demonstrates that while the civilian population has grown in a pretty much straight line, the same can not be said for the Civilian Labor force. Of course, for the US economy to be able to sustain…
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Reindexing The Unemployment Rate By America’s Population Growth Yields Some Ugly Results

Reindexing The Unemployment Rate By America’s Population Growth Yields Some Ugly Results

Courtesy of Tyler Durden

One of the more peculiar phenomena in the current Great Recession has been the persistent drop in the Civilian Labor Force Participation Rate, after averaging around 66.5% for the past 20 years, in the past 18 months it has plunged, and despite a marginal improvement over the past several months, is still at 65.2%. This is counterintuitive when one analyzes the data side by side with the overall civilian population in the United States. An indexed chart, using the January 2000 level as a baseline demonstrates that while the US population has been climbing at a fairly steady arithmetic growth rate, the civilian labor force, which should track the changes in the actual population, has been behaving in an erratic pattern, having more to do with BLS data interpretation and the nuances of the business cycle than demographics. Which is why when reindexing data for nominal changes in the US rate of population growth, yields some troubling variations from the just disclosed 9.9% unemployment rate. Basing the adjustment to the unemployment rate on nothing but a statistical regression to the growth of America over the past ten years, would yield an unemployment rate of 12.7%. More troubling is that the underemployment rate would be a number far higher than the 17.1% disclosed for April. According to our calculations, a reading closer to 22% would be more appropriate to represent the level of real joblessness in the US. A number, which is higher than the corresponding metric in austerity-ridden Spain.

First, we demonstrate the labor force participation rate. The most recent disclosed reading of 65.2% is materially different from the 20 year average of 66.4%.

Of course, the US population isn’t static. It grows constantly, and according to the BLS, the Civilian Noninstitutional Population has increased from 211.4 million in January 2000, to 237.3 million in April 2010. This is a 12.3% change, which is nearly 50% compared to the change in the Civilian Labor Force, which has increased from 142.2 million to 154.7 million, or an 8.7% change.

Showing this graphically yields the following chart: an indexed comparison of these two very interlinked series demonstrates that while the civilian population has grown in a pretty much straight line, the same can not be said for the Civilian Labor force. Of course,…
continue reading





UK Resumes No Fly Zone Beginning 1 AM GMT Due To Volcanic Ash: Heathrow And Gatwick Closed

Courtesy of Tyler Durden

Just what Europe needs (where the EURUSD and EURJPY opened earlier at level below the Friday close): more air traffic shut downs due to the unpronounceable Iceland volcano. Beginning 1 AM GMT, so in about an hour, Heathrow and Getwick will be shut down, “with more disruptions likely over coming days” reports the BBC. Virtually all airports in the UK, including Heathrow and Gatwick will be shut down, causing more millions in losses for both commercial aviation and crimping trade in and out of Europe, especially for time-sensitive products. As of yet it is not certain when airports will resume operations. In the meantime if you are flying into Europe with a UK connection over the next 24 hours, you are out of luck.

From BBC

The air traffic authority Nats said the Civil Aviation Authority had been forced to extend a no-fly zone imposed earlier on Sunday after the ash cloud had spread further south.

In England, other airports inside the no-fly zone include Humberside, Leeds Bradford, Blackpool, Sheffield, Doncaster and Carlisle.

In Wales, Caernarfon is the only airport affected.

All three Northern Ireland airports – Belfast International, George Best Belfast City Airport and City of Derry Airport – have also been shut.

In the Irish Republic, Dublin Airport is closed until at least 0900 on Monday.

Donegal, Sligo and Ireland West airports have been closed until 1200 on Monday, and Galway until 0900. Waterford Airport is due to close at 2300 on Sunday until at least 0900 on Monday.

In Scotland, Prestwick airport, near Glasgow, said it would not “receive” any flights until 1245 on Monday. Aberdeen airport said it will close between 0100 and 0700 on Monday.
 
The UK no-fly zones are set out by the Civil Aviation Authority using Met Office data.

In an attempt to soothe nerves, a Manchester Airport official said “There is absolutely no official suggestion or prediction that the prolonged, continent-wide airspace restrictions experienced in April are about to occur again.” We wish we could share the optimism – something tells us the Iceland revenge only going to get worse.





 
 
 

Zero Hedge

Johns Hopkins, Bristol-Myers Face $1 Billion Suit For Infecting Guatemalan Hookers With Syphilis 

Courtesy of ZeroHedge. View original post here.

A federal judge in Maryland said Johns Hopkins University, pharmaceutical company Bristol-Myers Squibb and the Rockefeller Foundation must face a $1 billion lawsuit over their roles in a top-secret program in the 1940s ran by the US government that injected hundreds of Guatemalans with syphilis, reported Reuters.

Several doctors from Hopkins an...



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Phil's Favorites

This Is The One Chart Every Trader Should Have "Taped To Their Screen"

Courtesy of Zero Hedge

After a year of tapering, the Fed’s balance sheet finally captured the market’s attention during the last three months of 2018.

By the start of the fourth quarter, the Fed had finished raising the caps on monthly roll-off of its balance sheet to the full $50bn per month (peaking at $30bn USTs, $20bn MBS, although on many months the (balance sheet) B/S does not actually shrink by this full amount which depends on the redemption schedule) and by end-Q4 markets also experienced some of the largest volatility and drawdowns in nearly a decade.

As Nomura&...



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ValueWalk

The Competition For Capital Has Made Stocks Cheap

By Michelle Jones. Originally published at ValueWalk.

The new year is upon us, and now is the time many investors look at what 2018 was and prepare for what 2019 might be. Recession jitters are starting to pick back up again, especially now that the full picture of 2018 is in the books. But what if you could pick only one theme for 2018? Jefferies strategist Sean Darby and team have a suggestion which is especially timely given that it appears to mark the end of an era.

StockSnap / PixabayVolatility carries into the new year

This past year was one of extremes, and the markets ended i...



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Kimble Charting Solutions

Stock declines did not break 9-year support, says Joe Friday

Courtesy of Chris Kimble.

We often hear “Stocks take an escalator up and an elevator down!” No doubt stocks did experience a swift decline from the September highs to the Christmas eve lows. Looks like the “elevator” part of the phrase came true as 2018 was coming to an end.

The first part of the “stocks take an escalator up” seems to still be in play as well despite the swift decline of late.

Joe Friday Just The Facts Ma’am- All of these indices hit long-term rising support on Christmas Eve at each (1), where support held and rallies have followed.

If you find long-term perspectives helpf...



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Digital Currencies

Transparency and privacy: Empowering people through blockchain

 

Transparency and privacy: Empowering people through blockchain

Blockchain technologies can empower people by allowing them more control over their user data. Shutterstock

Courtesy of Ajay Kumar Shrestha, University of Saskatchewan

Blockchain has already proven its huge influence on the financial world with its first application in the form of cryptocurrencies such as Bitcoin. It might not be long before its impact is felt everywhere.

Blockchain is a secure chain of digital records that exist on multiple computers simultaneously so no record can be erased or falsified. The...



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Insider Scoop

Cars.com Explores Strategic Alternatives, Analyst Sees Possible Sale Price Around $30 Per Share

Courtesy of Benzinga.

Related 44 Biggest Movers From Yesterday 38 Stocks Moving In Wednesday's Mid-Day Session ...

http://www.insidercow.com/ more from Insider

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 chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...



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Biotech

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 www.shutterstock.com

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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OpTrader

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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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.

Some other great content in this free eBook includes:

 

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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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