Archive for 2010

M2 Surges By $30 Billion In Past Week To Highest Ever, Even As Monetary Base Declines

Courtesy of Tyler Durden

Another week in which the M2 jumped to a fresh all time high, increasing by $30 billion W/W to just under $8.7 trillion. This was only the fourth largest weekly jump in this broad money aggregate in 2010, with the prior biggest ones clustered just around the time of the Greek “out of court” reorganization and the flash crash in May. This was also the 8th sequential increase in the M2 in a row.

Oddly enough this occurred even as the Monetary Base (NSA) declined by $11 billion to $1.983 trillion. Currently, the M2-MB ratio stands at 4.4x, close to its all time lows, with the recent decline purely a function of the modest contraction in the Fed’s balance sheet as MBS had been rolling off for the past 4 months. With QE Lite in play, expect the Fed’s Balance sheet to remain flat, which will likely mean that the ratio of the Fed’s asset to the Monetary Base will remain more or less unchanged at its elevated ratio of 1.15x (with a tendency toward declining), compared to the historical average of around 1.00. Note the (as expected) inverse relationship between the M2-MB ratio and the total size of the Fed balance sheet, as the monetary base has exploded courtesy of excess reserves, without this number actually hitting M2. Is the recent leakage in M2 higher, coupled with a contraction in MB the critical step that all the inflationists have been dreading (yet at the same time expecting)?

 

 





Federal Reserve Balance Sheet Update: Week Of September 8

Courtesy of Tyler Durden

It is time for the weekly update of the only financial component that really matters: the composition of the Fed’s $2.3 trillion (and rising) balance sheet.

  • Securities held outright: $2,047 billion, an increase of $1.8 billion from the week prior.
    • Total Treasury holdings increased from $786 billion to 788 billion, as the Fed bought another $1.7  billion in USTs as part of QE Lite.
    • MBS holdings were flat at $1.1 trillion.
    • Agency holdings were also flat at $157 billion.
  • Net borrowings: unchanged at $60 billion from the prior week.
  • Float, liquidity swaps, Maiden Lane and other assets: $185 billion, an increase of $1 billion. FX liquidity swaps are at $64 million as the same bank that is experiencing a USD funding crisis continues to have no EURIBOR/LIBOR acces. The “value” of Maiden Lane I declined just marginally from the highest since November 2008, and was at $15.97 billion. Maiden Lane II was at $23 billion, while AIA Aurora was $25.7 billion. 
  • The monetary base declined by $2 billion and was $1.993 trillion (even as M2 surged in the past week. More on this shortly)
  • Reserve balances with banks: $1.031 trillion, a decline of $3 billion from the prior week.
  • Foreign holdings of USTs and MBS at a new all time high of $3.22 trillion.





Deustche Bank Raises a Boat Load of Captial to Buy the Insolvent!

Courtesy of Reggie Middleton

Deutsche Bank Plans to Raise at Least $12.4 Billion, Bids to Buy Postbank

Sept. 13 (Bloomberg) — Deutsche Bank AG, Germany’s largest bank, plans to raise at least 9.8 billion euros ($12.5 billion) in its biggest-ever share sale to take over Deutsche Postbank AG and meet stricter capital rules.

Deutsche Bank expects to offer between 24 euros and 25 euros a share in cash to Postbank stockholders to increase its 29.95 percent stake in the lender, the Frankfurt-based bank said yesterday. The company intends to book a charge of about 2.4 billion euros in the third quarter as it marks down the value of its existing Postbank holding.

Chief Executive Officer Josef Ackermann is planning the biggest rights offer in Europe this year as he seeks to reduce Deutsche Bank’s dependence on investment banking by gaining control of Postbank, a consumer lender based in Bonn. The capital increase will also help Deutsche Bank meet new rules from global regulators that more than doubled banks’ capital ratios.

“Deutsche Bank is doing it all at once — bidding for Postbank and topping off its coffers,” said Peter Thorne, a London-based analyst at Helvea Ltd. who is reviewing his rating on the stock. “This will help them move into line with their international peers in terms of capital.”

Subscribers should recall that I went over this in some detail in the beginning of the year. I consider Postbank to be insolvent. See the following subscriber downloads:

For those who do not subscribe, here is the first page of that professional document release in May of this year:

 





Basel III Summary, And The Fed’s Endorsement of 20x+ Leverage

Courtesy of Tyler Durden

Earlier today, the Basel Committee on Banking Supervision committee released Basel III guidelines, which are expected to have a material impact on curbing bank risk appetite… when they are fully implemented in July of 2019. Luckily by then the last thing on people’s minds will be whose bank’s Tier 1 capital (which includes such intangible “capital” items as mortgage servicing rights and preferred stock) was being misrepresented for the past 9 years, as real cap ratios are discovered to have had a decimal comma following the zero. In the meantime, here is the summary of the proposed changes to bank capitalization requirements, which apparently were so “stringent” that the Fed issued a Sunday afternoon press release patting itself, and the entire financial system on the back, for pulling off another multi-trillion toxic debt David Copperfield disappearing act. So for the next several years, banks will need to demonstrate a stringent 4.5% Common Equity cap ratio, in other, will be allowed leverage over 20x. And this is the “stringent requirement” that has forced Deutsche Bank to sell over $12 billion in new stock to raise capital. Furthermore, the coincident take over of Post Bank will surely allow DB to terminally confuse its investors as to what its final pro forma numbers are supposed to represent, and, more importantly, what the unadjusted actuals really are… Surely this example of just how woefully undercapitalized European banks are (consider the DB action a stark refutation of the “all is clear” statement proffered by the Stress Test farce from July) will be enough to get the EURUSD back to 1.30 overnight.

Basel III Sumary terms (courtesy of BiiiCPA)

A. Tier 1 Capital

A1. BASEL II:

Tier 1 capital ratio = 4%
Core Tier 1 capital ratio = 2%

The difference between the total capital requirement of 8.0% and the Tier 1 requirement can be met with Tier 2 capital.

A2. BASEL III:
Tier 1 Capital Ratio = 6%

Core Tier 1 Capital Ratio (Common Equity after deductions) = 4.5%

Core Tier 1 Capital Ratio (Common Equity after deductions) before 2013 = 2%, 1st January 2013 = 3.5%, 1st January 2014 = 4%, 1st January 2015 = 4.5%

The difference between the total capital requirement of 8.0% and the Tier 1 requirement can be met with Tier 2 capital.

B. Capital Conservation Buffer

B1. BASEL II:
There is no capital conservation…
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Graham Summers’ Weekly Market Forecast (Time for the 200-DMA? edition)

Courtesy of Phoenix Capital Research

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Last week I forecast that the stock market would likely rally to test its 200-DMA. We didn’t quite get there, but that’s largely due to the fact that no one was actively trading the market last week.

 

Indeed, thanks to a holiday week that entailed both Labor Day and Rosh Shoshanna, market volume was truly abysmal. In fact, last week saw even lower market volume than during April 2010 top, which should give you an idea of just how few participants were involved:

 

 

 

Due to the light participation, the market was essentially tossed this way and that by a handful of traders/ institutions, which made for a volatile week in terms of intra-day action with stocks often swinging 1% on the intra-day.

 

Indeed, the only truly significant developments from a technical perspective were that the S&P 500 broke above resistance at 1,100 and then rose to challenge 1,110.

 

 

Which brings us to today.

 

First off, the most important item to note is that it’s options expiration week. And it’s not just any options expiration week, it’s quarterly options expiration week. So this is THE week for Wall Street to thrash the market to insure the greatest number of contracts expire worthless. So the likelihood of an extremely volatile week is very high.

 

The most obvious pathway would be for stocks to finally challenge and perhaps even break above their 200-DMA at 1115. If volume stays light, then this outcome becomes even more likely.

 

 

Depending on just how aggressive Wall Street gets, we could even see a test of 1,131 on the S&P 500. As noted in last week’s forecast, this would represent an 8.8% rally similar to that which occurred during the early July ramp job.

 

From today’s levels (1,109), a rally to 1131 would only mean stocks going another 2% higher. We’ve…
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A Look At Global Economic Events In The Upcoming Week

Courtesy of Tyler Durden

From Goldman’s Thomas Stolper

Week in Review

There was renewed focus on European sovereign worries the past week as markets returned from the post summer lull to be confronted by news headlines raising some doubt over the European stress tests results, Irish banking worries and large strikes in France. EUR/$ was further weighed upon by the moderation in Eurozone activity (German IP, manufacturing orders). Elsewhere, markets traded on a slightly firmer footing, buoyed by recent positive surprises in the US data (the previous week’s ISM and payrolls and the latest jobless claims data etc). In FX, we saw most crosses trade in a tight range, with NJA currencies outperforming slightly.
 
We opened a new short EUR/AUD trade last week, predicated on our more hawkish views on the Australian rate hike cycle (our Australia economists expect a hike in October where little is priced still). Meanwhile we could still see further near term downside in the EUR/$ (reflected in our 3-month forecast at 1.22) given renewed focus on the European sovereign and political issues. We also saw interesting moves in the CNY as it fixed at its strongest level on Friday since its ‘depeg’ in June. We continue to be positioned for further moves over the next 9 months (through our recommendation to be short $/CNY via longer-dated NDFs). We expect political pressure to be sustained, especially heading into key political events over the next few months, including the US mid term elections and the G20 Summit in November.
 
The China data released over the weekend showed stronger than expected rebound in activity (IP, retail sales and FAI) as well as in broad money growth. This rebound was likely driven by a ‘stealth’ policy loosening since July, including the areas of administrative and fiscal policy as well as credit controls. CPI printed higher at 3.5% yoy, in-line with consensus, but we do expect moderation ahead as food prices normalize going forward. Overall, this set of numbers should soothe fears of a sharper slowdown and likely support sentiment into the start of trading next week.
 
Also to come later today, details of the Basel III regulations on European bank capital requirements will be released. Depending on the details, this will also likely influence sentiment and EUR/$ as we head into the new week.
 
 
 
Week Ahead
 
Latest read on the US slowdown The key datapoints this week include…
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A Detailed Look At China’s August Trade Surplus

Courtesy of Tyler Durden

Last week the Chinese Customs Administration released its August trade balance details, which came at a hair over $20 billion, slightly short of analyst expectations. The number was a substantial decline from the July surplus of $28.7 billion, which had also resulted in a surge in the US trade deficit to $49.8 billion in the past month, which subsequently declined to $42.8 billion in July, prompting Morgan Stanley’s David Greenlaw to boost its Q3 GDP estimate to 2.4% from 2.1%, after it had reduced its economic forecast three short weeks earlier. Notably the decline in the overall surplus was almost exclusively a function of declining exports, which dropped from $145.5 billion to $139.3 billion, which imports increased modestly to  $119.3 billion from $116.8 billion. Most interestingly, for all those who considered this month’s US trade data as indicative of a moderation in the reliance on Chinese exports, and a preemptive resolution of upcoming US-China trade wars, may want to reevaluate that assumption in the face of the Customs data showing that US Imports declined just marginally, from $27.4 billion to $26.7 billion, which was still the second highest number ever. In other words, with numbers near all time record on the margin, fluctuations at this point are merely noise as exporters and importers shifts shipments temporally: next month’s data will most likely demonstrate a continued deterioration in the US trade deficit, putting further pressure on 2011 US GDP expectations, which an increasingly more pessimistic Goldman will likely soon reduce to sub-1%.

Chinese monthly gross imports and exports and net trade balance:

Monthly trade deficit by country:

China-US monthly trade balance:

China-EU monthly trade balance:

China-Rest of World trade balance:

Overall, the last month trade data was sufficiently noisy to not confirm any inflection points in an overall trend of increasing wealth transfer from the US to China. And yes, if China is truly as focused on developing its middle class as it parades, the trade surplus should continue declining. Although the probability of that happening is small at best. As for what will most likely end up happening, once the noise has washed out of the system, Michael Pettis sums it up best:

What does this all mean?  I would argue that the trade imbalances are getting worse, but the rising US


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Squeezing the lemon – risk appetite being sucked higher

Squeezing the lemon – risk appetite being sucked higher

Courtesy of Rohan at Data Diary

Risk appetite has been ticking higher this past week. The price action in isolation looks pretty positive. The question that is troubling the synapses is whether equity markets are poised to thrust higher once more – egged on by the monetary cattleprod of the US and a seeming stabilisation in China’s growth dynamics.

Risk appetite index 500x291 RISK APPETITE BEING SUCKED HIGHER

Certainly the penultimate rejection of the S&P500 off 1040 set the scene for a short squeeze of material proportions. Given the ramp up in volumes that accompanied the selloff from the April highs, it’d be reasonable to expect that there’d be a block of nervous ‘shorts’ at levels not too far from here. It’ll be interesting to see what the tea-leaves say about who sold/bought in the Flow of Funds data next week, but the 1130 level is looking like a pretty tasty target.

US equities price and volume 500x303 RISK APPETITE BEING SUCKED HIGHER

For the moment, it’s probably wise to respect the price action. It’s a reasonable probability that we run through 1130 while under the influence of that big can of nitrous oxide. With declining participation, any buyers ‘on the break’ will be that much easier to suck in. Witness the ever vanishing activity in CBOE equity options.

Equity option volumes 500x293 RISK APPETITE BEING SUCKED HIGHER

Still my read of the bigger picture has this run-up as a position driven head fake.  Momentum has turned lower since the April high that marked the exhaustion point for global stimulus mark I. It’s looking increasingly unlikely that successive rounds of government intervention will be as wildly successful as the first. While the leading indicators are tracking lower, so will the market.

The other factor tugging at the market’s tail is that the logic for risk spreads to widen remains compelling. The Fed may be the fat kid sitting on the longer end of the Treasuries market, but ultimately the other end of the risk plank can’t join in as the economic malaise works its way through earnings forecasts and default probabilities. This rally should meet its maker over the next couple of weeks – just a matter of whether it can convince him that all those calories can’t be good for you.


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Peak Everything

Peak Everything: An Interactive Look At How Much Of Everything Is Left

Courtesy of Tyler Durden at Zero Hedge 

Scientific American has done a great summary of peak commodity levels as well as depletion projections for some of the most critical resources in the world including oil, gold, silver, copper, not to mention renewable water, as well as estimating general food prices over the next half century. Generally speaking, regardless of whether one believes in peak oil or not, the facts are that stores of natural resources are disappearing at an increasingly alarming pace. And instead of the world’s (formerly) richest country sponsoring R&D and basic science to find alternatives, the US government continues to focus on funding a lost Keynesian cause, debasing the dollar and perpetuating a system that will do nothing to resolve any of these ever more pressing concerns. Furthermore, as by 2020, the US will have around $23 trillion in debt (per CBO estimates), the government will be far too focused on using anywhere between 50-100% of tax revenues to cover just interest expense, than funding science and research. Then again it is probably only fitting that future generations will be saddled with not just $100 trillion in total sovereign debt, but will be running out of water, will see sea levels rising ever faster, will have no flat screen TVs, and will be using Flintstonemobiles to go from point A to point B. All so a few bankers and ultra-wealthy individuals don’t have to recognize total losses on their balance sheets filled with trillions in toxic debt.

Some key highlights from Scientific American, as well as the year in which a given resource either peaks or runs out:

Oil – 2014 Peak

The most common answer to "how much oil is left" is "depends on how hard you want to look." As easy-to-reach fields run dry, new technologies allow oil companies to tap harder-to-reach places (such as 5,500 meters under the Gulf of Mexico). Traditional statistical models of oil supply do not account for these advances, but a new approach to production forecasting explicitly incorporates multiple waves of technological improvement. Though still controversial, this multi-cyclic approach predicts that global oil production is set to peak in four years and that by the 2050s we will have pulled all but 10% of the world’s oil from the ground.

In…
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Weekend Reading – Those Who Fail to Plan, Plan to Fail

Interesting Gallup poll:

Only 1 in 3 Americans actually favor keeping tax cuts for the top 2% (people making over $250,000 a year).  As Barry Ritholtz says, that may come as a shocker to anyone who watches CNBC or reads the Journal or Fox or other conservative information sources.  Maybe the Democrats aren’t so crazy pushing this as the focus of the upcoming election.  

Caroline Baum goes as far as to blame Bush for "the biggest tax increase in history," saying  "Everyone knew or should have known that this was a temporary tax cut (wink, wink) designed to put pressure on future Congresses. After all, no lawmaker wants to run on a platform of: “Vote for me, I raised your taxes.”"  The Bush tax cut was "the equivalent of taking out a variable-rate mortgage that is scheduled to increase after five years,” says Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University in Arlington, Virginia. “You know the rate is going to go up.”  That’s how the law was written, de Rugy says. “By spending like drunken sailors, they almost guaranteed that tax cuts would be in jeopardy in the name of the deficit.”  It would have been better, she says, to make the tax cuts permanent and cut spending along the way.

The IMF also plays on the theme of "thinking ahead" by pointing out that we pretty much have a crisis once every decade so, next time – why not plan for it?  The IMF proposes a "precautionary credit line"  The Fund’s member countries have asked its staff to explore options for overlapping layers of protection for the global economy as well as working on establishing synergies in terms of lending and surveillance with key regional financing arrangements.  They are also considering a Global Stabilization Mechanism, a framework that would allow proactive provision of financing during a systemic crisis to stem contagion.  

According to the IMF: "Good policies and frameworks—endorsed with FCLs (Flexible Credit Lines) and PCLs—are certainly the first line of defense. However, as history and the recent crisis have shown, there are times when localized events trigger panic among investors, setting off chain reactions across markets and countries irrespective of fundamentals. The intensity of investor withdrawal during the recent crisis surpassed most expectations, with normalcy returning slowly and only after many forceful measures were taken by
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Phil's Favorites

Brexit identities: how Leave versus Remain replaced Conservative versus Labour affiliations of British voters

 

Brexit identities: how Leave versus Remain replaced Conservative versus Labour affiliations of British voters

Courtesy of Geoffrey Evans, University of Oxford and Florian Schaffner, University of Oxford

British politics was relatively stable in the post-war decades, and voters’ strong party loyalties were influenced by their place in society. More recently, there has been a marked decline in the number of people identifying with a political party, and in the strength of that attachment.

Now, our new research for a repor...



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Zero Hedge

Stocks Jump On Kudlow Denial: "There Is No Cancellation. None. Zero."

Courtesy of ZeroHedge. View original post here.

"There are no cancellations. None. Zero. Let's put that to rest."

Hours after a headline from the FT about the US cancelling a round of trade talks with two senior Chinese ministers send stocks reeling to their lows of the day, the administration has dispatched Larry Kudlow (who apparently had to wait until 20 mins before the close thanks to CNBC's wall-to-wall Davos coverage) to jawbone the markets back into the green by...



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Kimble Charting Solutions

S&P and Crude both testing key breakout levels!

Courtesy of Chris Kimble.

The correlation between Crude Oil and the S&P 500 has been rather high over the last 100-days, as each looks to have peaked at the same time around the 1st of October at (1).

After peaking together in October, Crude fell over 40% and the S&P nearly declined 20%, with both bottoming on Christmas Eve at each (2).

Both have experienced counter-trend rallies since the lows, as Crude is up 23% and the S&P 13%.

These rallies have both testing dual resist...



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Insider Scoop

Cowen Suits Up With Nike, Looks To Outperform

Courtesy of Benzinga.

Related NKE Consumer Discretionary Q4 Earnings: U.S. Consumer Appears Strong Amid Heightened Global Uncertainty Golf Equipmen...

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Chart School

Weekly Market Recap Jan 20, 2019

Courtesy of Blain.

After entering the week quite overbought, indexes took a small retreat Monday before hurling back upwards.  This is typical of the “V” shaped moves up after any significant selloff, we’ve seen most of the past decade and watching them unfurl is quite amazing actually.  Thought maybe this time would be “different” but not so much.  So two week’s ago we asked “Has the Fed solved all the market’s problem in 1 speech?” – and thus far the market has answered resoundingly yes.  The word of the year thus far in 2019 is “patience” as that simple insert into a speech change the whole complexion of everything.

China has also been busy stimulating; on Tuesday:

An announcement from the People’s Bank of China that ...



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ValueWalk

Everyone Else Is Selling Stocks, So Is It Time To Buy?

By Michelle Jones. Originally published at ValueWalk.

After a difficult few trading days in the beginning of the year, U.S. stocks are bouncing back with meaningful gains on Monday following Friday’s strong rally. The S&P 500, Dow Jones Industrial Average and Nasdaq 100 were all up by more than half a percent by midday. It looks like investors could be taking advantage of the end-of-the-year declines, but is this a wise time to be buying?

Trying to time the bottom of the market will almost always be a fool’s errand, but one firm suggests equities could have much farther to fall before they hit bottom in 2019.

...



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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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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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