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Which Way Wednesday – Fed Edition

CASH!!!

That is our response to market uncertainty and we are officially cashing out our Money Talk Portfolio after a very successful 2-year run where we've taken it from a $50,000 start to $124,043, which is up a whopping 148%.  I'll be on BNN's Money Talk Show later this evening to discuss the matter but, in short – it's simply too hard to protect those gains against all the market uncertainty regarding the Fed, Trade, Brexit, the Middle East, Election Interference, Impeachment, Overpriced Stocks & Indexes and, of course, a slowing Global Economy.  While the market is, so far, content to "soar and ignore" – I don't think we have more than 10% left in the best of circumstances while the risk is a 20% drop – so I'd rather sit this quarter out.

Of course "sitting out" doesn't mean we won't still find things to trade – I just want to get a clean start in 2020 and I don't want to risk what we've made in the last quarter of 2019.  We also reviewed our Hemp Boca Portfolio yesterday morning in our Live Member Chat Room and, though it's only 4 months old and only up 8.2% so far, we reduced our risk on that one as well.  One difference is I'm on the Hemp Boca show at least once a month to make adjustments but only on Money Talk once a quarter and, between now and January – I really can't condone the risk of holding positions without the ability to make changes!  

Our Butterfly Portfolio is market neutral and self-hedging so we simply removed some of the riskier plays but the Options Opportunity Portfolio, which is now up almost 300% in less than two years is going to be completely closed down, as will the Long-Term Portfolio and the Short-Term Portfolio that protects it.  As with our Hemp Boca Portfolio, I will be highlighting those trades I think are worthy of keeping but, for the purposes of our educational porfolios – I think there's more to be gained next year starting with a clean slate so we can emphasize portfolio building strategies and stock picking.

Here's our Hemp Boca Review from yesterday's Live Member Chat Room:

OK, so let's see if I can actually bring myself to shut down the portfolios.  We'll start with the Hemp Boca Portfolio as it's small and I should go on the show this afternoon (haven't decided yet).  

Hemp Boca Portfolio Review:  This portfolio is not as constrained as Money Talk as there's a show every Tuesday and I can go on when I want (PSW Investments owns 20% of Hemp Boca).  We started back on May 21st so it's 4 months old and we're up 8.2% but we were down about 20% at one point (same positions) so I'm not sure I want to risk Q4 in such a small and new portfolio.

The question is, as it will be with EVERY position in EVERY portfolio this month – do we, right now, want to be in this position if the market drops 20%?

  • IMAX – Worst case is owning IMAX for $20 and I'm generally fine with that but you have to keep in mind it's a $50,000 portfolio with $100,000 in ordinary buying power (we're assuming not IB as those guys are crazy!).  It's a conservative position that's in the money and we should have good support at $21 and $20.50 held on the last dip so hard to kill – especially as I expect Q4 to be huge box office for IMAX.  Max possible on the spread is $4,000 and now net $2,325 so $1,675 (72%) left to gain by Jan seems like one we should keep.  Damn it!  This is hard…

  • M – We are ahead so we're going to kill it.  Not actually ahead, down $900 on the overall position but too risky for the small portfolio in an uncertain market.  

  • MJ – Back to the lows on this one but I want to stick with them.  

  • TAP – Had a nice pop and we're on track at net $7,500 out of a potential $20,000 but, if we spend $3,200 to buy back the short puts, we reduce our risk and still have a $20,000 spread – it only increases our net cost from $4,750 to $7,750 but, since that will make us net $10,700 (no more short puts to subtract), then we're in the spread for a very good price without so much downside risk and we still have $9,300 (87%) upside potential.    

  • THC – We just added these and they blasted higher and we have a 20% cushion to STILL be in the money – what's not to love?  The net is now $3,762 out of a potential $7,000 so $3,238 (86%) left to gain – another keeper.  

Well, that went terribly.  It's very hard to shut down good positions.  At least I feel less risky without those high Macy's puts and the big TAP obligation.  If all goes well, we have $14,213 of upside potential that we're confident in plus whatever MJ makes and we're up $4,110 already and $18,313 would be 36.6% over 2 years in a $50,000 portfolio we started 4 months ago – that's not a bad start! 

Best of all, we are still mainly in CASH!!! so we can DD on any or all of our positions if the market does turn lower.  

Note that in the Money Talk Portfolio Review, we also pointed out some "keepers" – especially IBM, which is our 2019 Trade of the Year and that trade idea, as it stands now, is only net $2,707 on 5 contracts and, although that's already up $2,532 (1,446%) from our $175 entry on 2/1, it is a $7,500 spread and still stands to gain another $4,793 (177%) – so it's still good for a new trade and IBM only has to hold $135 into Jan of 2021 to make that money and, as our Trade of the Year – we certainly have the confidence it can ride out a little dip along the way.  Still my favorite trade at the moment!

One thing I'd like to emphasize here is how well a portfolio can grow if you are CONSISTENT in your profit-making strategies.  Warren Buffett says he only has one rule of investing and that is: "Don't Lose Money" because losing money costs you something more valuable than money – it costs you TIME!  If your portfolio stragegy makes you 20% in a good year and loses 10% in a bad one, then your growth can be 100, 120, 144, 129, 155, 140…  While a strategy that makes "just" 10% EVERY year yields 100, 110, 121, 133, 146, 161 – even if you win 3 out of 5 times (60%) in the 20/10 strategy, you still get your ass kicked by a consistent 10% gainer.  

That's why, although the Hemp Boca Portfolio may seem dull with an 8% gain in 4 months, it's on track to go from $50,000 to $80,000 in 24 months if we consistently make 2% a month but, in reality, as our portfolios begin to gain traction, we are able to take a few more risks to accelerate that growth even further but really, even the MTP's 148% is "only" a consistent 4% monthly gain and that is not hard using our "Be the House – NOT the Gambler" system – we just demonstrated that with last month's PSW Report on "5 Trade Ideas to Make $25,000 in 5 Months" where we are using just $6,565 in cash and $26,659 in margin to make $33,603 (511%) by Jan 17th, 2020 – if all goes well and, so far, it is.

CONSISTENCY is why we are happy to give up some of our gains in order to hedge our portfolio and, at this point in their cycel, the gains in our portfolios and the size of the positions have led us to conclude that CASH!!! is the best hedge at the moment.  Other than changes in the Dollar – we can't lose with CASH!!! and we ALWAYS are able to find things to buy – just take a look at 5 years of our Top Trade Alerts – we average between 70% and 80% success rates on those! 

At S&P 3,000, a lot of good news is already anticipated by the market and PERHAPS an actual trade deal with China coupled with an easy Fed can take us another 10% higher but then I'd be selling anyway and the trick of the markets – especially the options market – is that you get much better prices selling during a rally than you do in a downturn, especially if you are forced to sell in a hurry.  So it makes sense for us to take this opportunity, as we revisit the market highs for the 5th time in two years (2,872 in Jan 2018) to take the opportunity to cash out and start some new portfolios from scratch for 2020.

We'll see what the Fed does this afternoon and, more importantly, what Powell has to say at 2:30 but, if you remember last time (July 31st), the Fed gave us a 0.25% rate cut and Powell could not have been more doveish in his statements but then the President threw a temper tantrum and the S&P fell from 3,020 (higher than it is now) to 2,850 (down 5%).  We're just cashing out ahead of the madness – up or down, it's going to be a hell of a ride!

 


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  1. Morning, All!

    Join Phil at 1 for the weekly webinar, here:

    https://attendee.gotowebinar.com/register/6736853280533545485



  2. It shows that something is wrong here when most people are worried about everyday expenses:


  3. Changing history in Russia, something that I have seen first hand in my visits:

    https://medium.com/dfrlab/russian-diplomatic-twitter-accounts-rewrite-history-of-world-war-ii-3d86c441d10d

    Happening here already!


  4. Apparently not everything is awesome:

    https://ritholtz.com/2019/09/retail-bankruptcies-closures-2019/

    “The pace of retail bankruptcies in 2019 to date is accelerated compared to what we observed in late 2018. The 2018 holiday season failed to meet expectations, with December retail sales dropping 1.6% from the month prior—the weakest sales performance since December 2009. Last year’s lackluster holiday season contributed to 10 retailers filing for bankruptcy in 2019’s first quarter alone, including Payless, Gymboree and Charlotte Russe. The bankruptcies of just these three retailers led to the closure of roughly 3,700 stores. Several retailers also filed in July and August, including Charming Charlie, Barney’s, A’gaci and Avenue Stores”

    Is Amazon getting all that business? 


  5. Retailers/StJean – I dunno about Amazon itself, but my son the fraud investigator tells me that Amazon Marketplace is fraud central. All sort of scams, straight ripoffs, and a lot of money laundering going on there, and he says the Marketplace administrators are clueless. He and people like him (he works for BofA) try to educate them about what's going on, but apparently they had no idea this would happen and even less idea how to spot it and address it.


  6. Good morning! 

    Trump orders "substantial" increase in Iran sanctions.

    Webinar – Might be short if I have to go to Miami for the show – something is wrong with Ft Lauderdale studio I usually go to.  And, by the way, it turns out the show is still at 7pm, they are just taping at 5:30 now.  

    Big Chart – Back to the top of the range – big deal…

    Everyday expenses/StJ – It breaks my heart down in Florida to see how many old people have to worry about every penny – such a stressful way to go.  Medical costs are the real killer – co-pays and pills really add up for people on tight budgets.  

    My town (Delray Beach) is so strange as pretty much every restaurant has happy hours from 4-7 with half-priced drinks and cheap food but then, at 7:01 – it's back to $15 drinks and Kobe Beef Sliders!   It's fun to see the people who come just after 7 and wonder how they have so much money to waste that they couldn't make it 15 mins earlier…

    Changing history/StJ – As Orwell foretold. 

    Retail/StJ – I think it's a culling of the weak but then people get caught up in dead malls, like JCP, who tend to anchor lower-level malls and the stores around them go out of business and the whole mall becomes depressing to visit.   We have one of those in Boynton Beach – a mall on its last legs…

    With 18 empty stores, more on the way out and no word of new retailers, online retail competition, a choice of higher profile malls in Wellington, Palm Beach Gardens, Boca Raton and the recently opened Palm Beach Outlets, can Boynton compete or even survive?

    Developer Randall Greene speculates that it could face the same fate as the Palm Beach Mall, which closed in 2010 after Simon Property Group let it go into foreclosure, paving the way for new owners to convert it into the Palm Beach Outlets.

    “The Palm Beach Mall died a slow death and this mall might do the same,” Greene said.

    In the past three years, the Disney store, Dairy Queen, Mrs. Fields, Build-A-Bear Workshop, Bucca Di Beppo and Toojay’s closed or relocated, leaving a skeleton of what used to be a vibrant place to shop.

     

    Littman’s Jewelers will close its store on Jan. 15 after rent prices went up, a store manager confirmed. Sears, which anchored the north side of the mall, will close in February as part of a plan to shut down 40 locations nationwide.

    “If I was a retailer I wouldn’t move there,” Boca Raton Realtor Orin Rosenfeld said. “I think there are better options out there.”

    Not adjacent to Interstate 95, the mall is not in an “ideal” location, is more suited for lower, middle-class families and faces competition with high-end malls in the area, Rosenfeld said.

    The mall is surrounded — almost hidden — by newer shopping centers that already hold big retailers such as Target, Walmart, Bed Bath & Beyond, Best Buy and Big Lots. Big-name restaurants like Bonefish Grill, Longhorn Steak House, Friday’s, Panera and Tijuana Flats are home to these plazas, which are cheaper to lease space than the mall, Rosenfeld added.

    So the places the bottom 50% can't afford to go to are running the mall out of business.  

    That's a lot of lost jobs closing 7,282 stores! 

    AMZN/Snow – The biggest fraud on AMZN is shipping charges on non-prime items (you have to be very careful as many are sneaky) and also packages of products and food that have less than the normal amounts.  I don't even buy things that aren't Prime anymore – but that's falling for AMZN's trap as they want it that way.  I've gotten better about returning things – if it's not what I expected I put it right back in the box and send it back – maybe they'll eventually learn their lesson but I doubt it.


  7. Good Morning!


  8. Phil

    Good morning!

    I like your decision on closing the portfolios.

    Meanwhile, as you said, we will continue to have trading opportunities. That being said, what do you think of the drop in Fedex?

    They anticipate $11 instead of the prior $14 in earnings this year and at 12 times their prior earnings, it translates to $132. Question is, should their multiple take a hit also? I ask that because they are not executing. Is that a temporary thing? I have always liked the company, although their services have been more expensive than UPS. But it was Fedex that had the reputation of being a well run machine. Question is, has that changed?


  9. Option Opportunity Portfolio Review (OOP) – Part 1:  $393,234 is up $62,624 since our 8/13 review as all those value plays I refused to let go of finally took off but making 20% in a month is a REALLY good time to take the money and run and we are, in fact, going to shut the OOP completely down and, since it's redundant to the LTP/STP – I don't think we're going to restart it next year.  We were running it for Seeking Alpha but I stopped working with them so no reason to just copy and remix the LTP.  

    Trade Exchange officially launches soon so maybe we'll make a Top Trade-like portfolio for that PSW Investments Venture.  Meanwhile, just a quick review and I'll note positions I'd rather keep or will be looking to re-enter if they go lower (the beginnings of a new Watch List is step 1 to building new potrfolios). 

    • HMNY – Nothing to cash out here, shares are a souvenir.
    • HOV – Nice recovery!
    • We cashed most of our short puts already.  Nothing I want to keep.
    • ALK – No reason that won't pay off in full – keeper.  (and by keeper I mean I would keep it if I weren't closing this portfolio).  

    • C – At the money and already up $10,000 so don't complain. 
    • DXD – Hedge.
    • FNSR – How can the long calls and the short calls be down?  Based on the fact that, at $23, this would close at net $6,000 and it's now net $3,500 – I'd keep it.  Potential is $14,000 so $11,500 left to gain makes it good for a new trade.  

    • SQQQ – Hedge.  Tempted to keep the hedges but don't want to make bets either way.
    • WPM – Leftovers from our trade.  I was going to rebuild but we'll start from scratch another time. 
    • SKT – You know they are a keeper to me.  Paying a 9% dividend and right above our target
    • AAPL – Always hard to let go of – keeper
    • AXL – That one didn't work out.
    • BBBY – Nice recovery! 

    • BHC – Under consideration for Butterfly Portfolio due to nice up and down action within a channel.

    • CHK – Such a frustrating one – good if China deal is reached. 
    • CLF - Such a frustrating one – good if China deal is reached. 
    • FCX - Such a frustrating one – good if China deal is reached. 
    • FTR – I'd keep this one, will certainly go in a new portfolio.

    • GME – Brand new so I'd say keeper but we're out with a tiny profit. 
    • GNC – Finally popped, happy with a profit.
    • GOLD – Been waiting 2 years for gold to move up and now that it does we've only just begun to take advantage.  This is a $28,000 spread at net $6,927 so – KEEPER!  

    Obviously, selling the same amount of gold in Q3 at an average of over $1,450 vs $1,300 for the past 5 years is going to boost their profits, right?  Over the past 90 days, Q3 estimates have gone from 0.09 to 0.14 (55%) and Q4, which might start at $1,500, has gone from 0.09 to 0.16 (77%) and estimates for the year have gone from 0.38 to 0.51 (25%).  Q1 was 0.11 and Q2 was 0.09 and the stock was $13 so I think $20 is very realistic for a target as they are running at an $8Bn rates so figure 6M ounces sold but profits are just $200M per Q, indicating only $66.666 per oz drops to the bottom line so another $150 per oz should be pretty much all profit and make a dramatic difference in profits and forecasts.  We'll see on next earnings but this would be my Stock of the Year for next year if they were still at $15.

    Barrick Gold (GOLD) Upgraded to Buy: What Does It Mean for the Stock?

    Barrick CEO Bristow says Nevada gold find shows big potential

    •  HBI – A $14,000 spread at net $4,300 on last year's Trade of the Year?  Keeper!  
    • INTC – I love them for the next decade but nice profit and we can always find a new entry. 


  10. FDX/Maya – I did some work for them back in the day and they used to have big advantages in coordination and hubs that others couldn't replicate but now we have AI and much more sophisticated tracking systems (I can watch my delivery driver leave the restaurant and drive to my house now after I've first been notified they are firing up my order in the kitchen) so what FDX has is less special and less defensible.  Once upon a time, I remember people used to get fired for using UPS when something got lost but now even the USPS knows where my package is at all times.  Last time I went to the FedEx store, I almost died of sticker shock and that was, in fact, the last time I went there.  

    Not only that but AMZN is now building their own shipping and, even though AMZN doesn't use FDX, they won't use USPS or UPS as much and that will then create a glut of shipping capacity going forward so for those an other reasons – yes, they deserve a contracted multiple – especially when there are recessionary fears going forward.  

    If you look at their slope from 1997 to 2007, then 2017 started off in the right place ($150) but quickly went crazy and has now corrected.  

    Year End 31st May 2014 2015 2016 2017 2018 2019 2020E 2021E CAGR / Avg
    Revenue $m 45,567 47,453 50,365 60,319 65,450 69,693 71,245 74,725 +8.9%
    Operating Profit $m 3,815 1,867 3,077 4,566 4,272 4,466     +3.2%
    Net Profit $m 2,324 1,050 1,820 2,997 4,572 540 3,829 4,191 -25.3%
    EPS Reported $ 7.48 3.65 6.52 11.1 10.8 1.75     -25.2%
    EPS Normalised $ 7.48 4.27 7.79 12.5 14.3 4.63 14.7 16.3 -9.2%
    EPS Growth % -24.1 -42.9 +82.2 +60.8 +14.4 -67.7 +217.5 +10.7  
    PE Ratio x           37.5 11.8 10.7  
    PEG x           0.17 1.11 0.98
    Profitability

    $149 is a $39Bn valuation and very reasonable if they can keep $4Bn in earnings up but can they is the question.  People who paid $250 thought they would go from $4.5Bn last year to $5Bn+ but they went 10% the other way instead – very disappointing.  At $100 I'd love to have them again but even $150 is a bit rich for me – given the economic uncertainty.


  11. I'm never going to get to them but I want to be clear that I want to also cash out the LTP and STP.  I will do a review and note the "keepers" but, at the moment, the LTP is $1,729,833 (up 246%) and the STP is at $886,611 (up 786%) and when they were at $2.2M I was going to cash out ahead of the 7/31 meeting and quickly regretted it as we dropped close to $2M, now we're at $2.6M and MAYBE we get to $3M or maybe we drop back to $2M but I KNOW I can easily make $400,000 with $2.6M in cash to get to $3M but it will be a lot harder to have to start again with $2M and get to $3M – probably a year harder and there's that time thing again.  

    So, in conclusion – it's simply not worth the risk! 


  12. What's going on(cause)  in the overnight short term repo market? Rates rocketing higher last two nights.


  13. Lots of note sales (Trump's runaway deficit) and deadline on Corporate Taxes caused a drain on bank reserves and the NY Fed is scrambling to replace them but nothing really alarming though, of course, sometimes something like this causes a panic and THEN we have a real problem.  


  14. It’s another potential piece of the jigsaw as investors grapple with this week’s turbulence in the money market, where the rate on one-day loans backed by Treasuries — known as repurchase agreements, or repo — jumped to as high as 10%. The surge is a sign that Wall Street firms, which have been absorbing record government debt sales, are struggling to meet the funding demands of participants. Cash was also sucked out of the system because companies have quarterly tax payments to make.

    The Federal Reserve stepped in to calm the market on Tuesday by injecting billions of dollars. The central bank said it’s willing to spend another $75 billion on Wednesday.


  15. MDR halted.  Down 48%.


  16. Options Opportunity Portfolio Review (OOP) – Part 2:

    • JO – All in the money and on track but, on the whole, this has been an annoying trade for us so I won't miss it.
    • KHC – This will be part of any new portfolio so keeper.  
    • LB – Will probably add back after next earnings.  

    • M – You know I'm jumping right back in this one.  Already time to buy back the short calls and roll again but, one day, we'll find a bottom.  Still, not a keeper but expect a new trade.
    • MJ – Another big disappointment I'll probably go back to the well for.
    • MU – Net $12,335 on a $30,000 spread in a Stock of the Year candidate for 2020 – keeper.

    Image result for robot chip shopping cartoon

    • NAK – Keeper.  I'd hate for them to pop while I didn't own them.
    • NLY – Keeper.  Solid dividend stock.
    • OIH – Huge disappointment and this is AFTER they had a nice comeback – good riddance!
    • SEE – I like them but not immune to economic shocks. 

    • SIG – Coming back a bit and it's a $19,000 spread at net $2,450 so I'd say keeper, though a bit risky still.  

    • T – $14,000 spread at net $8,785 can't be a keeper – we'll just have to wait for the next good entry.
    • UNG – I wish this wasn't so risky but not a keeper.  Nice that we're finishing on a high note.  
    • WBA – I say keeper.  I'll certainly have this in a new portfolio and every portfolio going forward until they are back over $70.


  17. FDX/Phil

    Thanks for your thoughts.








  18. US businesses ‘tapping the brake’ as uncertainty bites



  19. Saudi Arabia says Iranian missiles, drone hit oil facilities



  20. Speaking of Retail, here's a good chart – taking out autos/gas and groceries look what we're left with:

    Webinar time – just going to be a short one (until just after the Fed at 2) and then I have to get ready to go to BNN.


  21. Phil—for some reason I have the following  long spread on UNG

    Jan 21,  15 call @ 7.35 and the Jan 20 (not 21) , 22 call @ 2.35—--what would your suggestion be?   Thank you


  22. Saudi Arabia sees little economic damage from Aramco attack as IPO presses on


  23. Thanks to all the techies for their very helpful advice and guidance. Purchased/installed the Lynksys switch and I have expanded direct ethernet connections as needed. Peace and harmony :)


  24. Wow, so much movement for so little changes:

    Image

    Trump is already on the attack

    Dollar up 0.3%, indexes down 0.8% – about right.

    There's nothing in those 15 different words that justify any of this – so glad we cashed out!

    I have to go get ready for BNN – will touch base later but not home again until later tonight.


  25. Trump is really politicizing everything now! This country will really be unrecognizable once he is done – no trust left in any of the institutions, first and foremost the presidency! It was bad enough with Congress.


  26. Stj- Trump & his Republican enablers!! They all have to go next year. Hopefully We’ll be getting ready to welcome the Warren administration about this time next year!


  27. SOFR crisis potential not factored into volatility currently. Volatility in a perfect world going forward" price mode right now. Short term action on UVXY, SVXY, etc, warranted. Could be a relaly interesting month, may even catch a lucky spike like Jan 2018.


  28. IWM rejected and now quadruple-topped at ~160. Can enter into put options here on this one.


  29. Phil/SOFR – oh it's a real problem, first Saudi's bomb the most replaceable part of their own oil production logistics to clear $100B in oil futures and then the SOFR quintuples? And now volatility is predicting "business as usual" with the VIX near cyclic lows… I think some folks are in for a rude awakening soon, but that always seems to be how these things go.

    I guess Aramco doing the IPO to dump their deprecated asset stripping activities onto bagholders isn't going to generate a quick enough of a return, and they now Dump in office will let them do whatever they want while he runs around coddling dictators, so they can fleece the FAKE oil contracts market as much as they want, so I'd expect to see a lot more of this, and the resulting fake news Iran-blaming horseshit that further escalates geopolitical instability. Having Dump bumble his way through his one-term tenure self-aggrandizing his wonderfulness may have come to an end, and now the horrific horror show of seeing how a pathetic, man-child with narcissistic personality disorder deals with real world turmoil has already begun. It's simply terrifying. My sincere hope is Trump supporters lose their shirt though, because I have no empathy for them.

    None.

    Yet another way trump is exactly like Hitler. Oy vei.


  30. Big stick into the close 


  31. Don't like to trade on Fed day, but had some fun with MDR.  In and out several times. Kept a small position at $1.80.








  32. A 21st Century Breakup









  33. Trump promotes false video of Rep. Omar







  34. Phil:

    Your take on MDR?


  35. Sold 1/2 MDR for $2.50 in the pre-market.