Archive for 2018

Hong Kong Money Markets Explode ‘Most Since Lehman’ As Carry Trade Unwinds

Courtesy of ZeroHedge. View original post here.

After more than five months of trading at or near the lower band of its currency peg (prompting repeated interventions by the city’s de facto central bank), the Hong Kong Dollar exploded stronger last week, imploding short-HKD carry traders and the carnage is for all to see tonight as HK liquidity markets are in crisis.

As Bloomberg reports, a shock jump in Hong Kong’s currency is signaling a decade-long liquidity party is coming to an end. That may be bad news for the city’s housing market.

The chance of local banks raising the so-called prime rate for the first time since 2006 is “extremely high,” Financial Secretary Paul Chan said.

Interbank rates from overnight to 3-months, have exploded higher as banks scramble for liquidity… overnight rates are now four times as high as they were last week…

(We note that liquidity also tends to tighten as banks hoard cash ahead of holidays this week and in early October.)

The Hong Kong dollar’s one-month interbank borrowing costs jumped the most since 2008, as the Lehman crisis escalated.

“The market has underestimated the pace of interest rate increases in Hong Kong,” said Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets Hong Kong Ltd.

This “will bring pressure to the property market and leveraged home buyers.”

“We expect banks to hike prime rate twice this year by a total of 50 basis points, as Hibor rises with a shrinking liquidity pool and Fed hikes,” said Frank Lee, acting chief investment officer for North Asia at DBS Bank (HK) Ltd.

“It will hurt property market sentiment.”

And the narrowing spread with U.S. Libor (green) is making a previously profitable trade of selling Hong Kong dollars to buy higher yielding U.S. assets less appealing.

“The short-Hong Kong dollar carry trade has come to an end,” said Ken Peng, an investment strategist at Citi Private Bank in Hong Kong. “Friday’s move suggests borrowing costs in Hong Kong have tightened a lot and will tighten further.”





New Policy Proposal Would Deny Green Cards To Immigrants On Welfare

Courtesy of ZeroHedge. View original post here.

The Trump administration is moving to fulfill another of President Trump's campaign promises by implementing more restrictions on legal immigration by deporting green-card holders who rely too heavily on federal government programs like food stamps. According to the Associate Press, the Department of Homeland Security published a 447-page proposal on Saturday outlining its plans to expand restrictions that would disqualify legal immigrants from obtaining a green card if they rely too heavily on Medicaid, food stamps, housing vouchers and other forms of public assistance. According to US law, applicants must prove they won't become a "public charge" – that they wouldn't derive more than half their income from government programs – to achieve green-card status. Under the proposal, the federal government would begin factoring in non-monetary benefits like food stamps and Section 8 housing benefits.

Nielsen

The rule would also require public officials to take into account factors like mental health issues, cancer and heart disease, since all these factors could increase the likelihood of a person becoming a public charge.

According to the Department of Homeland Security proposal, current and past receipt of certain public benefits above an expanded threshold would be "a heavily weighed negative factor" in granting green cards, as well as temporary visas. The proposal has yet to be entered into the Federal Register – but it will be entered into it at some point during "the coming weeks", at which point a 60-day comment period will begin.

If enacted, the rule could impact about 382,000 people a year, according to government estimates. However, opponents have said it could have a much wider impact as current green-card holders will avoid using badly needed benefits, according to the LA Times.

"Those seeking to immigrate to the United States must show they can support themselves financially," Homeland Security Secretary Kirstjen Nielsen said in a Saturday statement, adding that the new rule would "promote immigrant self-sufficiency and protect finite resources by ensuring that they are not likely to become burdens on American taxpayers."

The rule would not need to be approved by Congress following the comment period. Unsurprisingly, immigration advocates are already gearing up for a fight.

Immigrant…
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JPM Is Worried That Trump Is Getting So Cocky, He Is About To Make A “Major Miscalculation”

Courtesy of ZeroHedge. View original post here.

It has been one of the pronounced paradoxes of this market: the harder Trump pushes and escalates trade wars with various opponents – mostly China – the more the market rewards him by setting new all time highs, leading the president to believe he is "winning" and resulting in even more aggressive future escalations. Perhaps as a result, earlier today Goldman said that following Trump’s threat of further escalation in the trade war with China, the bank now thinks the probability that all imports from China will ultimately be subject to tariffs has risen to 60%.

And, in a note from JPMorgan's strategists over the weekend, the bank expressed a similar – if even more nuanced – concern, warning that it is starting to make "forecast and strategy changes" around issues emerging from the US-China conflict.

One is the growing possibility that the US-China trade war enters Phase III in 2019, resulting in tariffs on all +$500bn of imports from China, similar to Goldman's conclusion. The bank notes that without more policy easing, this scenario implies weaker China growth, which directly impacts the commodity complex’s incipient recovery. And depending on the weight authorities give to monetary versus fiscal measures over the next 6 to 12 months, the renminbi could depreciate sufficiently to pull EM Asia and the non-oil commodity complex lower.

The other, and more interesting, concern is that US economic and equity market resilience – despite tariffs – will embolden the President on all geopolitical fronts – autos, NAFTA and particularly Iran – and thus risk a major miscalculation from sanctions that are tough to calibrate.

This possibility is the driver behind JPM’s revised oil price forecast for the next several quarters, from a previous average price forecasts for Brent of the low $60s (mid-$50s on WTI) in Q4 2018 and Q1 2019 to $85/bbl (WTI $76/bbl) over the next six months, with even a spike to $90/bbl increasingly likely. As a reminder, some analysts still believes sthat it was oil's superspike in the summer of 2008 that ultimately catalyzed the collapse of Lehman. Incidentally, the main driver of this upward price revision is the higher estimate of how much Iranian crude exports might decline due…
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Beware The Zombies: BIS Warns That Non-Viable Firms Are Crippling Global Growth

Courtesy of ZeroHedge. View original post here.

Ten years after central banks unleashed a period of record low interest rates, the central banks' central bank is warning that this may not have been the smartest move.

In the latest quarterly review from the Bank of International Settlements, the Basel-based organization that oversees the world's central banks warned that decades of falling interest rates have led to a sharp increase in the number of “zombie” firms, rising to an all time high since the 1980s, threatening economic growth and preventing interest rates from rising.

Zombie firms are defined as companies that are at least 10 years old, yet are unable to cover their debt service costs from profits, in other words the Interest Coverage Ratio (ICR) is less than 1x for at least 3 consecutive quarters. These types of companies, which first gained attention in Japan decades ago and have since gained prevalence in Europe and, increasingly, the United States.  According to a second definition, a requirement for a "zombie" is to have comparatively low expected future growth potential. Specifically, zombies are required to have a ratio of their assets’ market value to their replacement cost (Tobin’s q) that is below the median within their sector in any given year.

According to authors Ryan Banerjee and Boris Hofmann, zombie firms that fall under the two definitions are very similar with respect to their current profitability, but qualitatively different in their profitability prospects, which may be a function of how central banks have "broken" the market.  Graph 1 below shows that, for non-zombie firms, the median ICR is over four times earnings under both definitions. As the majority of zombie firms make losses, the median ICRs are below minus 7 under the broad measure and around minus 5 under the narrow one, so this is hardly a surprise.

A striking difference between the broad and narrow zombie measure emerges, however, with respect to expected future profitability, as measured by Tobin’s q. Under the broad measure, the median Tobin’s q of zombie firms is higher than that of non-zombies. That means that investors are optimistic about the future prospects of  many of these zombie firms, more so than that for the non-zombies! As this group includes such
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Futures, Yuan Slump At Open After China Cancels US Trade Talks

Courtesy of ZeroHedge. View original post here.

Having rallied 800 points last week on hopes that US-China trade tensions were on a path to de-escalation, Dow futures are opening down just 100 points (and Yuan is lower) after China escalated and canceled two planned trade talk visits.

After President Trump slapped a fresh round of tariffs on Chinese goods, targeting 10 percent duties on $200 billion of goods; the two camps were scheduled to meet in order to dial back tensions.

That was what sparked hope that this was just a trade skirmish (as Jamie Dimon attempted to play down), sending stocks soaring all week.

However, that is all over now.

The Journal just reported on Friday that, according to sources, China has rescinded the proposals to send two delegations to Washington.

Chinese officials have said such pressure tactics wouldn’t induce them to cooperate.

By declining to participate in the talks, the people said, Beijing is following up on its pledge to avoid negotiating under threat.

“Everything the U.S. does hasn’t given any impression of sincerity and goodwill,” Chinese Foreign Ministry spokesman Geng Shuang said at a press briefing Friday.

“We hope that the U.S. side will take measures to correct its mistakes.”

And the result at the Sunday night futures open… Dow futures are opening down…

As are the rest of the US equity futures markets…

And Yuan is down modestly also after ramping for four days on trade hopes…

Meanwhile, WTI futures are up over 1% following OPEC's tepid response to President Trump's demands to lower the oil price…

The timing of this trade tension news, after the exuberant equity week, is also noteworthy as it follows Ray Dalio's, founder of Bridgewater, warnings that the current trade tensions mirror those of the 1930s:

"I think that the 1935-40 period is most analogous to the current period and that it is worth reflecting on what happened then when thinking about US-Chinese relations now. 

To be clear, I’m not saying that we are on a path to a shooting war, but I am saying that we have to watch what path we are on, given these cause-effect relationships that history has taught us and that are described in the template. This excerpt describes how the economic and political conditions of the late 1930s evolved into the wars that followed. "

Read more here…

We have discussed this case-effect relation before…





Understanding The Volatility Storm To Come, Part 1: Fragility In The Market’s Medium

Courtesy of ZeroHedge. View original post here.

Authored by Christopher Cole via Artemis Capital Management,

What Is Water In Markets? Volatility and the Fragility of the Medium

There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, “Morning, boys, how's the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, “What the hell is water?”.

-David Foster Wallace, This is Water (2005)

“This is Water” is the title of a commencement speech delivered by David Foster Wallace that has become a masterpiece of meta-thinking. If you haven’t listened to it, put down this paper and do so now. It is worth 20 minutes of your life.

The Foster Wallace parable of two young fish ignorant of the medium that defines their reality is so important on many levels. Foster Wallace contends that we swim in a world defined by self-centered thoughts, that serve to make reality visible, but should never be mistaken as fundamental truth. 

In capitalism the medium that defines reality is fiat money. To this point, does money exist? This seems silly to ask but it is very important philosophically. Yes, money exists in the sense that you can purchase goods and services with it. At the same time, money is only important because of a collective belief in it, and is worthless without that. This is true of any human construct: markets, words, brands, and nation-states… all abstract mediums that have meaning because we collectively believe they do, and hence they give form to reality, but are not real independent of our thoughts.

In markets and in life, we swim in mediums of thought abstractions… the same way a fish swims in water. When the medium collapses, so does the reality… causing us to question the nature of both. As Foster Wallace eloquently explains, “The immediate point of the fish story is that the most obvious, ubiquitous, important realities are often the ones that are the hardest to see and talk about.”  

Volatility is
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Andy Xie: Change Is Coming & With It, A Reckoning

Courtesy of ZeroHedge. View original post here.

Authored by Andy Xie, op-ed via The South China Morning Post,

Andy Xie says both China and the US have built their economies on financialisation while ignoring the people’s concerns, and the trade war will hasten the reckoning both countries need…

The door for compromise and restoring a functional relationship between the United States and China appears to have closed. The 10 per cent tariffs on US$200 billion of Chinese goods, rising to 25 per cent from January 1, is the final straw. There will be more negotiations to come. At some point, there may be announcements of compromises and a positive outlook. But, for now, the reality is that China and the US have gone into rivalry mode – a rivalry that will define the 21st century.

The dispute began with US President Donald Trump’s complaints about the bilateral trade balance and access to China’s market. It then morphed into a dispute on intellectual property rights violations and China’s economic model of subsidising technology development. Now, it is about global strategic rivalry.

The US’ contention is that China makes money from the US and is using it to push America out of Asia and elsewhere. It is difficult to see how the US could climb down from this position. To follow its rhetoric, it will try to cut off China from its market and block technology exchanges.

This rivalry may bring short-term pain to both nations, and to the world, but it may prove beneficial to all in the long run.

The lack of external checks has led to rising internal imbalances in both countries. Since the end of the cold war, the US has been marred by surging inequality, while bubbles and ignorant hubris have come to occupy the central ground in China’s economic management and political thinking.

Financial speculation and corruption have become normalised around the world. The titanic rivalry between the world’s No 1 and No 2 economies will put all on their toes. Some of the most egregious trends could be reversed.

The short-term pain is quite visible in China. Its stock marketis plummeting. And the property market is on edge and may soon…
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China for the Trade Win?

 

China for the Trade Win?

Courtesy of John Mauldin, Thoughts from the Frontline

With all the trade war talk, we all ask the obvious question: Who will win? President Trump says the US will win. Chinese business leaders say no, we will win. Free-traders on both sides say no one will win. Few stop to ask, “What does a ‘win’ look like?”

This makes discussion difficult. People are chasing after a condition they can’t even define. Victory will remain elusive until they know what they want. Regardless, you can score me on the “no one wins” side. I believe, and I think a lot of evidence proves, that free trade between nations is the best way to maximize long-run prosperity for everyone.

However…

As Keynes famously said, we’re all dead in the long run. Trade war may end with no winners, but the parties will be better and worse off at various times as it progresses. So we have to distinguish between “winning” and “holding a temporary lead.”

On that basis, I think the US will have the upper hand initially, and could hold it for a year or two. This is because, for now, our economy is relatively strong and we can better withstand any Chinese retaliation. Beyond that point I think our current policies will begin to backfire, maybe spectacularly.

Remember, too, China has growing trade surpluses with much of the world. One Chinese insider told me that within four years China can replace lost US exports via increased trading with the rest of the world. I can’t verify that but looking at general statistics it certainly seems plausible. That doesn’t mean lost US trade won’t be felt, but China is not entirely helpless.

When watching a fight, we ask metaphorically, “Who will blink first?” In this case, that’s the wrong question. Neither side will blink but one may eventually fall to the floor, unconscious. So the better question might be, “Who will faint first?”

Next week we will deal with the tariff situation, as I get that question a lot. But let me state right here: I hope President Trump is engaged in a trade bluff and not a trade war. The market seems to think…
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Is The Oil Burden A Rising Problem?

Courtesy of ZeroHedge. View original post here.

Authored by Daniel Lacalle via DLacalle.com,

While markets become increasingly bullish, oil prices are close to a “warning zone” where the barrel could be one -if not the only- catalyst of a major slowdown.

In my book “Escape from the Central Bank Trap”, I explain the concept of the “Oil Burden”. It is the percentage of global GDP spent on buying oil. It is often said that when the oil burden reaches 5-6% of GDP it can be a cause of a global slowdown.

The mistake that many make is to think that the oil burden is a cause and not a symptom.

In the past, we have seen that a period of abrupt increases in oil prices was followed by a recession or a crisis. However, not because oil prices rose rapidly, but because the dramatic increase in commodities’ prices was caused by a bubble of credit and excess monetary stimuli.

In reality, the oil burden is perfectly manageable at 5% of GDP because the energy intensity of GDP growth is diminishing. We are less dependent on energy to create growth in the economy.

Global energy intensity (total energy consumption per unit of GDP) declined by 1.2% in 2017, slightly below its historical yet unstoppable trend (-1.5%/year on average between 2000 and 2017 and -1.8% in 2016). In fact, global energy intensity is down 54% since 1990.

So the problem is not the oil burden by itself but the cause of the price spike.

When oil prices rise abruptly we should be concerned, because they can cause a domino effect on the real economy. When the reason for the price increase is not fundamental, we have a major problem.

Why are oil prices rising abnormally in recent months?

  • Supply manipulation.  Despite inventories falling, OPEC has maintained a tight grip on supply, unjustified from the premise of an oil glut that is inexistent or from the premise of “low” prices, which are comfortably above $70 a barrel. By being greedy and keeping supply tight, OPEC is hurting its customers -mainly Europe- and creating the foundations of a forthcoming bust


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Bank Of America Calls It: “The Peak In Home Sales Has Been Reached; Housing No Longer A Tailwind”

Courtesy of ZeroHedge. View original post here.

Bank of America is ringing the proverbial bell on the US real estate market, saying existing home sales have peaked, reflecting declining affordability, greater price reductions and deteriorating housing sentiment. In the latest weekly report from chief economist Michelle Meyer, the bank warned that "the housing market is no longer a tailwind for the economy but rather a headwind."

"Call your realtor," the BofA note proclaimed: "We are calling it: existing home sales have peaked."

BofA's economists believe the peak was seen when existing home sales hit 5.72 million, back in November 2017. From this point on, sales should trend sideways, as this moment in time is comparable to the rate the economy witnessed in the early 2000s before the bubble inflated.

And while BofA believes existing home sales have plateaued, they do not think the same for new home sales. The reason: new home sales have lagged existing in this "economic recovery" – leaving homebuilders some room to flood the market with new single-family units before a turning point in the entire real estate market is realized.

The deterioration in affordability can mostly explain the peak in existing home sales. This is due to the Federal Reserve reinflating real estate prices back to levels last seen since before the 2008 crash. The National Association of Realtors (NAR) affordability index prints 138.8, the lowest since August 2008.

Chart 1 (below) shows there is a leading relationship between the trend in affordability and in home sales — a simple regression suggests the lead is about three months. In major cities, affordability continues to be a significant problem for many Americans amid a rising interest rate environment and elevated home prices, existing home sales should remain under pressure for the foreseeable future.

Chart 2 (above right) indicates that the share of properties with price discounts is on the rise, suggesting that sellers are unloading into weakening demand. The data from Zillow reveals that 15 percent of listings have price reductions, the highest since mid-2013 when home sales tumbled last.

The University of Michigan survey (Chart 3 below) reveals a worsening mood in the perception of buying conditions for homes. Respondents noted that home prices have become…
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ValueWalk

#1 Performing Global Macro Hedge Fund Sees More Shorts Opportunities Ahead As China Bursts

By Jacob Wolinsky. Originally published at ValueWalk.

Crescat Global Macro Fund update to investors on 1/19/2019

Crescat Global Macro Fund and Crescat Long/Short fund delivered strong returns for both December and full year 2018 in a difficult market. Based on ...



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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

Divisive economics

 

Guest author David Brin — scientist, technology consultant, best-selling author and futurist — explores the records of Democrats and Republicans on the US economy in the following post. For David's latest posts, visit the CONTRARY BRIN blog. For his books and short stories, visit his web...



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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 ...

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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.

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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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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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