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Follow-Through Thursday – Dow 25,000 and Bust?

How long, can this keep going on?  

"Well, your friends with their fancy persuasion

Don't admit that it's part of a scheme

But I can't help but have my suspicion

'Cause I ain't quite as dumb as I seem

And you said you was never intending

To break up our scene in this way

But there ain't any use in pretending

It could happen to us any day" – Ace

So far, 2018 is looking like 2017, with the indexes climbing up and up and, as I noted to our Members this morning, there's some good economic notes backing up the positivity including 18 states that raised the minimum wage on January 1st, which puts a bit more disposable income into the hands of 4.5M affected workers while putting upward wage pressure on 50M more.  Those effects take time to roll in but rising wages is a trend we should be able to rely on.  

Clearly the markets are loving it as we made fresh record highs and this morning the Futures are making even fresher, higher records but, as noted above, how long can this keep going on?  What has actually changed to justify today's record high?  

You can't just keep rewarding the market for doing the same thing it always does otherwise, as I warned back on November 29th, we will all be Billionaires.  While I'm sure you want to be a Billionaire, what's the point of it if everyone is a Billionaire?  If that happens, you're going to be nothing if you aren't a Trillionaire – that's what happened in Zimbabwe, where they were printing $100,000,000,000 bank notes in 2009, right before their currency completely collapsed.  

The US Dollar has collapsed by 4% since November and the S&P is up 6% but it's priced in Dollars so really only 2% gains priced in steady currency – but it looks pretty on the chart and people don't understand that stocks are priced in Dollars and there are two variables you need to look at to get the actual picture.  None of that matters, what matters is hitting 25,000 on the Dow but then what?  

Will the Dollar fall another 5%, below 90, which would be 12% down from 103 since Trump was elected?  Is this how we're going to make America great again, by making a much smaller measuring stick?  The S&P 500, priced in Gold, is just 0.3% higher than it was in December of 2016 (and down significantly against oil or Euros, which are up 15%) – the entire year of gains is essentially an illusion created by a weak currency and higher multiples paid by gullible investors – but that won't stop it from going higher – just something you should be aware of while you are playing the game.

Jeremy Grantham of GMO put out a note saying the market may melt up from here, before crashing hard, saying

“I recognize on one hand that this is one of the highest-priced markets in U.S. history. On the other hand, as a historian of the great equity bubbles, I also recognize that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market.” – Grantham

Bubble factors cited by Grantham include increasing concentration on certain stock market “winners,” the outperformance of quality and low-beta stocks in a rapidly rising market, “extreme overvaluation” and the role of the Federal Reserve who, just yesterday, released minutes that show they are indeed concerned that the market is overheating and will almost certainly hike rates 4 times this year. 

chartHere’s Grantham’s summary:

  • A melt-up or end-phase of a bubble within the next six months to two years is likely, i.e., over 50%.
  • If there is a melt-up, then the odds of a subsequent bubble break or meltdown are very, very high, i.e., over 90%.
  • If there is a market decline following a melt-up, it is quite likely to be a decline of some 50%.
  • If such a decline takes place, I believe the market is very likely (over 2:1) to bounce back up way over the pre-1998 level of 15x, but likely a bit below the average trend of the last 20 years, as the trend slowly works its way back toward the old normal on my ‘Not with a Bang but a Whimper’ flight path.

Grantham suggests putting money into Europe, Australia, India, China, not so much US equities, which he feels have run their course.  Yesterday, we published our own Watch List (Members Only) with 8 trades added to our portfolios so far and another 14 we're keeping our eye on.  If there is going to be a melt-up, we certainly don't want to miss out but we will begin adding some hedges along the way but, first, we will establish our longs.  

I will continue to add new positions to the watch list this week and we'll review the new portfolios over the weekend.  On the whole, we're still expecting a bit of a sell-off this month but, so far, there are no signs of it.


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  1. Up, up and away….

  2. When you read the summary from that new book on Trump, you really have to wonder why people like Kelly, Mattis and some others don't remove him from office:

    Unless they think that Pence is just as dumb and dangerous!

    im Baker, chief of staff for both Ronald Reagan and George H.W. Bush and almost everybody’s model for managing the West Wing, advised Priebus not to take the job. Priebus had his own reservations: He had come out of his first long meeting with Trump thinking it had been a disconcertingly weird experience. Trump talked nonstop and constantly repeated himself.

    “Here’s the deal,” a close Trump associate told Priebus. “In an hour meeting with him, you’re going to hear 54 minutes of stories, and they’re going to be the same stories over and over again. So you have to have one point to make, and you pepper it in whenever you can.”

    I would not want this guy managing anything in my small company!

  3. Vanguard is just a behemoth now:

    More than two decades later, the firm now has $5 trillion in assets under management and 17,000 employees across 18 offices. It is the largest U.S. mutual fund and exchange-traded fund provider by assets and the second largest money manager in the world after BlackRock.

    And adding $350B each year and growing!

  4. Good Morning.

  5. LB down over 16% from recent high of $63 to $52 this morning.

  6. I want to short the indicies but things are too crazy to tell which way we’re going. Nuts. 

  7. What happen to LB drop 13%

  8. LB reported Dec comp sales at +1% vs consensus +1.4% and guided to Q4 earning as $2.00 vs Consensus of $2.05

  9. M dropping hard too

  10. BRK/B- new high $202.

  11. Good morning!  

    Big Chart – And these are our bullishly adjusted levels!  The drop in the Dollar means I'm not going to change the lines though.  As the Fed starts tightening we should see an overall return to the mean.

    No resistance at all at Dow 25,000 – 64 points over on the index, 43 over on the Futures.  

    At least NQ is having trouble at 6,600 but it's over too.  /TF rejected at 1,565, /ES at 2,726 – should be it for the day there.  

    Trump book/StJ – Trump is suing the publisher and sent a cease and desist order to stop distribution.  Interesting move closer to a dictatorship…

    As to the stories, I had a business partner like that once – it drives you crazy.  After a week or two, you know all the stories by heart but they keep telling them, over and over – it's like a Chinese water torture when you have to be around it!  I think it's a kind of ADD thing – especially the people who can't stop the story once they start it.

    Vanguard is amazing, incredible growth.  That's a result of Madoff getting busted, a lot of people moved money away from small managers and fled to Vanguard.  

    LB/Den – About time, I'd love to be able to get back in.  Comps were easy to beat and they barely did and guided down 2.5%.   Bottom line is guidance is about $3.10 for the year (2017) with that $2 so $60 is too much without a raise and $45-50 is about the right zone at the moment (if they are projecting little or no growth).  

    Indicies/Jeff – I have some /NQ shorts avg 6,586 at the moment but already down a few thousand.  

    M/Jabob – Decent sales but going ahead with more store closings

    NEW YORK (AP) — Macy's says it enjoyed sales growth during the holiday season, but the improvement wasn't enough to offset a tough year.

    The department store said Thursday sales at established stores rose 1 percent in the November-December period. It now expects that figure to decline between 2.4 percent and 2.7 percent for the year. Total revenue is forecast to decline 3.6 percent to 3.9 percent compared to a year earlier.

    Macy's also says it will close another 11 stores early this year, cut jobs and streamline non-store functions. That should produce savings of about $300 million.

  12. Phil/NQ

    I tried shorting it several times yesterday and gave up. 

  13. How Michael Wolff did it

  14. The Real Future of Work

  15. The Dow clears 25,000 for the first time

  16. Cisco Systems: Repatriation Tax Hit

  17. Wow, it's like the Arctic outside.   It's snowing sideways on freezing winds.

    /NQ/Jeff – You are smarter than me!  I'm going with my gut on this one.

    That sample from the Wolfe book sounds great, can't wait to read it.

    If the RUT (/TF) can get below 1,555, that's a good sign that my /NQ shorts will work and /YM (25,040) is the laggard to short below 25,050.

    By the way, congrats to all the GreenCoin Millionaires this morning!

    I told Greg to take 10% (15M) off the table at 0.004 – stupid not to if we can get it as it's 50x back on our money and we still have 135M left.  Plus we already made about $35K on the other two Bitcoins (with a nice top call there!).  

    While it's still well-worth promoting GreenCoin, I will want to look at a new crypto candidate as well.  Probably Ripple (XRP) as BDC certainly knows his stuff and likes it here though it's $3.68, which is a lot as it's up from about a quarter last month!   Still, no harm in getting 1,000 and putting them away for safekeeping – that would be 50% more than we put into BitCoin and GreenCoin a couple of years ago.

  18. Phil—what are your thoughts on gold and the miners here? 

    It seems to be going straight up.

    Due for a little pullback in your opinion?

    I know you like ABX.

  19. Speaking of Ripple: there's a huge difference between USD and KRW right now. I don't know squat about international banking but this is simply just mega-arbitrage: buy XRP in the US at $3.12 and sell it in Korea at $4.20+. You could move $10M right now and not budge the markets. 

  20. Phil, I seriously doubt if you can sell ANY GRE at something close to that price, much less $15M!  

  21. Cryptos/BDC – the deal in Korea is that the government talking about banning crypto trade, and panic is ensueing.


  22. Hi Phil.  Very best wishes for a healthy and AWESOME new year to you, the staff, the members and your families!   90 degrees, sunny and breezy here in Costa Rica, so c'mn down!  I am holding 10  2019 FCX BCS (basis 2.55) and 10 short 12 puts (basis 2.65), nearly 90% ITM.  Time to roll the puts? Write calls against the BCS?   Advice please. 

  23. Jelutuck……….I think he meant 15M coins, not $$.  :)

  24. Phil/solar

    Noticed nothing on the watch list for solar.  SPWR or CSIQ?  Thoughts?

  25. Baron2/Solar – SPWR trade for OOP & LTP in yesterdays chat. 

  26. Phil – Melt Up, Blow Off – I just woke up, looked at the DJIA chart in the fish wrap and thought business as usual.  The din of hip hop from a TV, made me realize it's not 1929, it's 2018. 89 years have passed in the blink of an eye, and when it comes to investors, little has changed. And now for your moment of Zen….

    Run two interactive comparisons here…. Dec 1920 to June 1932, then slide it forward for Mar 2007 to present. Deja vu and Out.

  27. GRE — order to sell 10% as per Phil  1M

    BDC- Is XRP on Coinexchange – can't find it

  28. Latchdaddy, not sure about Coinexchange but I've used Gatehub to buy XRP.

  29. I tried opening a gate hub account but it’s giving me a “bad token” error. Any other exchanges anyone’s using that I should try? 

  30. Jeffdoc…I had the same issue opening it with the initial deposit to verify, I over rode the error and sent the nominal amount of BTC required to fund initially, then after testing it, I transferred in some ETH to convert to XRP.

  31. Anyone been able to open an account on Yobit to sell GreenCoins? The bid/ask on Coinexchange is BTC 0.00000003/0.00000004, way lower than YoBit. I don't see any volume on GRE for Phil's  order.

  32. Air/Solar

    Thanks; not just in chat, in the trades themselves.  Yet when I printed them out SPWR was not on the paper.  This time it was.  Thanks again.

  33. I too see the same bids on coinexchange as jelutuck, Phil can you advise how you getting a higher price ?

  34. Nat--what do you think about gold and the miners?

  35. Phil--I hope you are feeling better now?

  36. I don’t want to sidetrack this site too much on the crypto coin thing, but people seem interested. I’d be curious to get BDC’s opinion on some smaller alt coins. All have had a big run up lately, but not as hot as XRP.
    EOS More scalable version of ETH
    NEO Chinese govt sanctioned crypto
    CVC identity management using cryptos
    DASH low cost private peer to peer payment system

  37. /NG went off a cliff on slightly less than expected withdrawal:

    We'll see what holds but cold snap ends on the weekend and I think this was just a catalyst for people to sell off.  

    Oil with a better net draw than expected, that will support them for now.

    • EIA Petroleum Inventories: Crude -7.4M barrels vs. -5.1M consensus, -4.6M last week.
    • Gasoline +4.8M barrels vs. +2.2M consensus, +0.6M last week.
    • Distillates +8.9M barrels vs. +0.5M consensus, +1.1M last week.
    • Futures +0.28% to $61.78.

    Gold/Jabob – I just picked ABX, WPM and CDE yesterday and we talked about HMY the day before so yes, still bullish on minders for the year and gold/silver as well.  Sure there will be pullbacks, but I wouldn't bet against them.

    Won/BDC – That's because SoKo is cracking down on crypto so it's harder for Koreans to buy XRP than it is for people in the US.  Interesting dynamic to trade on – wish I had the time!

    GRE/Jet – But we can offer it, right?  And not $15M, 15M GreenCoins for about $60,000 is our goal.  I'm pretty sure that's what I said…  If people are willing to buy it – we're willing to sell it is all.  That's what I said weeks ago when I told people it would be stupid not to take 1/3 off the table at 0.001 if they bought in at 0.00022 as that was better than 4x so the remaining amount would be free and they could just sit back and enjoy the ride from there.  I'm trying to teach people how to responsibly play these silly cryptos.  Fair warning:  When it's 0.01, I'll again call for taking some off the table. 

    Thanks Taihu, wish I were there.  Not sure what your spread is but the short puts are down to 0.35 and not doing you much good.  Let's say you have the $15/20 spread which is $5.75/2.90 and you want to stretch it.  In that case I'd sell the 2020 $17 puts for $2.35 and roll the 2019 $15s out to 2x the 2020 $15 ($6.50)/$22 ($3.20) bull call spreads at $3.30 (+0.55) and I'd roll the short $20s to the March $20s ($1.25) for $1.65 with a stop on 1/2 at $2 to get on the road to selling short-term calls against the long-term position for 8 quarters (preferably 1/2 sales going forward).  

    SPWR/Baron – I know we added SPWR to the OOP and LTP, CSIQ I haven't gotten around to checking on yet.

    Good charts Naybob:

  38. Phil/FCX  Thanks Phil.  Current  FCX BCS is 2019 10/15 (basis 2.55).    Same advice?

  39. Phil

     You think FCX will sell off on earns 1-25-2018?

     Any trade on earnings


  40. Phil- still holding NQ and RB SHORTS?

  41. Sorry about the gap guys, fell asleep on the job.  Not fully recovered yet!  

    XRP/Latch, Bdon – Argh!  I do not want to start trading on yet another exchange.  Maybe have to pick something else to play with. 

    Bad Token/Jeff – Keep in mind this is why I think the whole thing is BS or, in the very least, not ready for prime time.  I hope everyone saw the video I posted this morning at the end of yesterday's chat.  These are not currencies and won't be currencies for many years – they are simply speculative vehicles and there's nothing really special about any of them and their values are simply fantasy constructs based on popularity so far. 

    That's why it's important to have a disciplined selling approach when you do happen to end up getting lucky with a coin.  With XRP, even if we take 10th off every 10x, if we start with 1,000 at $3.50 ($3,500):

    100 x $35 is $3,500 – so now we're having fun.

    • 100 x $350 is $35,000
    • 100 x $3,500 is $350,000
    • 100 x $35,000 is $3.5M
    • 100 x $350,000 is $35M 
    • 100 x $3.5M is $350M 
    • 100 x $35M is $3.5Bn
    • 100 x $350M is $35Bn 
    • 100 x $3.5Bn is $350Bn 
    • 100 x $35Bn is $3.5Tn 

    So, unless you feel you can't be satisfied turning $3,500 into $3.5Tn, don't be an idiot and take 10% off the table when you are lucky enough to get a 10-bagger because YOU STILL HAVE PLENTY and now you have your real money back to buy something else with!  

    Obviously to anyone but the most rabid crypto fan, you're NOT going to have $3.5Tn in coins so it may be prudent to drop that discipline to 5x or even every time it doubles -just don't lose your heads speculating on these things.  There's money to be made – but only if you are smart enough to take profits off the table!  

    Higher prices/Pat – Be more patient is my advice.  We're not able to sell them either but, if someone offers 0.00000032 BTC ($0.004), we'll take it!  

    As noted by Jet two weeks ago:


    GRE/Phil. I don't know…you can buy all the GRE you want for 2 Satoshi ($.00034) on, which is exactly the same as all the recent lows. 

    Now, apparently, the bid has moved up to 3 Satoshi and I think that's up 50% in an apples to apples comparison.  I know that may disappoint a lot of crypto fans but, if I can find holes like that in the market – I'll take them any time!   Of course, back then, I was banging the table to buy them and now I'm saying sell them – especially if you can get the 4 Satoshi – it's a ridiculous gain for a few weeks and can vanish just as quickly!

    Feeling/Jabob – Now that I had an unintended nap, I feel much better.  Nose is clearing up finally.

    FCX/Taihu – Argh!  Please try to give me the information first…  That spread is $10/5.80 so really you would just be cashing out $4.20 because you don't want to wait a year to make the last 0.80 and then you can look at the other as a new spread.  The lesson though, is think about where you'd be now if you had made that move when you crossed over $15 so you'll not sit there like a deer in headlights next time.

    FCX/QC – I would think they sell off, they are about 40% in the last month – seems a bit much to live up to.

    /NQ/Ravi – Hey, I just woke up, they're still there!  

  42. we already discussed in great length how Yobit's price is meaningless (the wallet has been offline for  year). Only the coinexchange bid/ask is relevant. 

    XRP. Here's a list of markets. Coinexchange does not offer XRP. Bittrex does however.

    Jelutuk/coins: I like all of those, though I've never even heard of "CVC" and can't find any info on it. There are so many, we need some kind of fund that buys all top coins (50-100 or so) and doesn't pick winners and loser IMO.

  43. Hi Phil, i have 10x SCO April bull call spreads 27/35. I bought at $2.25 and sold 5x April 29 puts at $4.40 to pay for them. Down about $2,500 on this play plus the loss around $1,500 on the first SCO play from last November. With oil on a roll higher is this one you have conviction on? Presume if we stick with this we should at least roll the long $27 calls down to lower strike? Appreciate your thoughts. Thanks

  44. Dmulligan, im in roughly the same SCO position, also interested to hear Phil's take on it. My thoughts on it was I'll likely just let the position run its course;

    if Oil drops between now and April and some value can be salvaged, great. 

    If not, I don't mind taking assignment of the SCO shares (and a loss on the other parts of the position) and then turning around and selling some calls on the SCO position while I wait, either continue to collect the call premiums, or eventually we'll get the move down we've been waiting for in Oil and get called away (probably still at a loss overall but at least a tolerable one).

    Thats my current plan anyway, subject to change once I hear Phil's take of course haha

  45. DMulligan/CRS/SCO

    I asked Phil about this last week.  He suggested I roll down to $25, and take off the $35's so I would have more flexibility as Jan/Feb should see a decline in oil, but I don't think this latest run up was expected.  Oil up and gas down, exactly the reverse of what we want.  Any rate, I kept the $35 short calls (good) and added a couple of $25 calls (bad), because then it got away from me, so, just waiting now.  Did sell shorter calls months ago at $34 and $35 to help but nothing now with only 3 months  to go.

  46. Boy does this remind me of 2000. CNET today shot from $3 to $12 because it "said it was partnering with Wuxi Jingtum Network Technology to expand into the blockchain industry"…  I did not know how to short in those days and lost a fortune. Now I am salivating to short everything!

  47. Phil, sorry about that.   Had it in there first draft.  Given the news about Trump opening every place  he can to drilling, thinking of taking a flyer on NAK.  Buy the stock straight up or options?

  48. SCO/DM – As I've been saying for a while, the oil bets became a problem when the Saudis started pushing the Aramco deal for 2018 and, as I said, they will pull out all the stops to get oil prices higher.  If they can make it to March without a sell-off – it's very unlikely we'll see one in April.  Your April $27 calls are still $1 but that's a shame as they were $2.75 last week, so a bit late to pull the trigger.  The $29 puts are $6.75 but the 2019 $25 puts are $5.80, so that roll would make you feel better.  Since that's $3,000 of your $4,000 loss, you can be happy if they just expire worthless or you can roll the $27 calls ($1) to the 2019 $27.50 ($2.85)/$35 ($1.85) bull call spreads even and roll the short April $35s (0.25) to the Feb $26s (0.40) and now you're making 0.40 every other month against your $1 spread while you wait to see if it ever goes in the money.  

    Let it run/CRS – No, you really need to do something about a bull call spread when the price of the long call falls below (or near) the net you paid for the spread.  At that point, you are able to fully recover your original cash and set up a new spread using that cash.   If you wait past that, you have to take more out of pocket.

    If it were not for Aramco and what I assume will be a year of maximum manipulation, then I'd be more inclined to get more aggressively short on oil but I don't see it as very predictable right now.  

    Sorry Barron, things did get worse due to the Iran thing.  Time for strategic retreat.

    No big change in the Petroleum Status Report that explains where 7Mb went other than the ever-mysterious "other oils", which dropped 5Mb and was likely where they hid it.  Also note that we are exporting 20Mb/week out of the country, which far, far more than accounts for our 7Mb draw.

  49. Cheers CRS & Baron. And thanks Phil. 

  50. CNET/MrM – Wow, what a total joke!   Up 666% at the moment – you know that's a message.  Someone with a tradebot is bragging to his friends that he can control the stock to that level (the last 6 is rounded).  

    NAK/Taihu – At $1.74, it's not worth paying a premium for the options but no reason not to sell the 2020 $2.50 calls for 0.70 and the $2 puts for $1 so you net in for 0.04 with $2.46 upside at $2.50.

    Since the worst case is owning 2x at $1.25 then buying 5,000 shares for $8,700 and selling 50 puts for $5,000 and 50 calls for $3,500 nets you in for $200 on the $12,500 spread and worst case is owning 10,000 shares for $1.27 ($12,700) and, even if we can only get 0.25 for the $1 calls, that would drop our basis to $1.02, etc.  

    So let's add that to the OOP as it's a fun one with great returns.  

  51.  I’ve got to tell you, this weather hammers home the point of why housing is the best performing asset for the past 150 years. You could have all the money in the world but it doesn’t do you much good without shelter. There’s like a snow hurricane by my house – crazy weather. 

  52. Phil; what would the buying power impact in the OOP be for a NAK trade like the one described above?  Low priced stocks often aren't given portfolio margin status.  With the O0P at $100k do you trade it based $200K of buying power?  Thx

  53. Dathan – "Nat--what do you think about gold and the miners?"

    Their minors, we should only pick the gold out of their teeth. IV Time and Out.

  54. Marijuana Legalization

  55. Can anybody help me understand phil's NAK trade from today? I'm new this month…not wanting to enter a live trade, just studying each idea to make sure I fully understand.

    In the NAK comment today phil says…

    "worst case is owning 2x at $1.25"


    "worst case is owning 10,000 shares for $1.27"

    I get where the 2x and 10,000 numbers come from but I can't tell how he computed 1.25 and 1.27.

    It seems to me that worst case scenario is stock price goes to 0.01 and since we bought 5000 shares @ $0.04 and had another 5000 put to us at $2.00 our net for 10000 shares is (2.00 + 0.04) / 2 = $1.02 per share.

    Can anybody shed light?

  56. NAK/dhall  Welcome to PSW. I hope you find it profitable!  That NAK trade was not one of Phil's clearest trade recommendations. I'm still scratching my head over it a bit, too. Maybe he can clear it up for us all.

  57. NAK/dhall – I'm sure he just mixed up the exercise price of the call and put, using $2.50 instead of $2.

  58. That’s probably it, l’ll Check it when I’m more awake.  

  59. S&P 500 P/E Ratio Approaching 23

  60. Donald Trump’s ‘chaos’ presidency reaches frightening new levels

  61. Good morning.

    Up and up the markets go…

    NAK/Options – I always check my non-PM account on TOS and, in the case of NAK, they are taking the full margin at net $5,000 but I don't find that unacceptable since we're going to make $12,300 on the spread.  As with any trade in any portfolio – if your broker is not giving you a favorable margin requirement and it's tight in your portfolio – don't make that trade.

    NAK/Dhall – Sometimes, when I'm writing up a trade, I change my mind about a strike but I don't change all my calculations in the rush.  I was originally going to be more aggressive and sell the $2.50 puts but I decided the $2 puts were safer.  So, if we're buying 5,000 shares at $1.74 less $1 for the $50 puts and 0.70 for the $2.50 calls, that's net 0.04 on 5,000 and, if assigned another 5,000 at $2, then the average price per share would be $1.02 and we would own $10,200 worth of NAK stock (using $10,200 in margin).

    On to the new post!