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Federally Fueled Friday – Powell Gives Us a Big Finish

Down and down the Dollar goes.

Powell pulled out all the stops yesterday, saying the Fed was no longer worried about inflation and would spend 5 years boosting the economy if they have to.  While Republicans love to pretend they don't tax you, devaluing all the money you've ever made in your live and most of your assets by 10% by reducing the value of the currency is kind of a tax, isn't it?  

The wealthy have all these great ways to keep up with inflation but, if you are a regular person getting a regular paycheck which comes in the form of Dollars – you got a 10% pay cut.  Not only that but not only does the deficit swell due to that same lower tax rate (for the rich) that causes the Dollar to collapse, but the thing the Government needs to buy with those tax Dollars begin to inflate, causing an even bigger deficit as Government Spending can't keep up with inflaiton.

Tommy Trenchard on Twitter: "Latest pics for the Wall Street Journal out  today, with @MatinaStevis's report on the shift from cash to mobile-money  in #Somaliland, where a few dollar bills will get4 more years of this and we'll need a shopping cart just to carry the money we'll need to buy groceries!   Of course, hyperinflation is a great way to pay off your debts as the economy can grow along with inflation (it's just your wages that don't keep up) while the long-term interest rates are fixed, so the money the Government pays back becomes worth less (worthless?) and PRESTO!, debt problem solved!  

Many 3rd World countries go down this path to pay off their debts but it is just as much a confiscation of wealth from the people as any tax ever was but, fortunately, those of us in the Top 1% can simply manage our investments to stay ahead of the game – lucky us!  Our Trade of the Year was GOLD, because we expected some inflation due to Trump's market-boosting policies but we're now operating at a whole new level – he has certainly kicked it up a notch and now Powell is on the bandwagon too.

Speaking of America becoming a 3rd World country under Trump, his fantasy-land nomination speech last night got me to try to remember what reality was and here's how America is actually doing compaed to the rest of the World in virus control under Trump's leadership:

Trump worked hard last night to defend his record here, through a mixture of blame-shifting (“our nation, and the rest of the world, has been hit with a once-in-a-century pandemic that China allowed to spread around the globe”) and misdirection (“The United States has among the lowest case fatality rates of any major country in the world”). But the truth here is undeniable. Under Trump, America has let coronavirus rage across the population in a way peer developed nations haven’t.

It is not Trump’s fault that the coronavirus reached our shores. It is Trump’s fault that we’ve responded so fecklessly. There is no reason that, say Germany, should’ve been so much more capable in its response. The difference was political leadership — a difference that was viscerally, visually on display during Trump’s speech, which packed 1,500 people onto the white House lawn, with barely a face mask in sight.

The grim truth is that, even today, we still don’t have a plan to control the coronavirus, save to hope for a vaccine. Vice President Mike Pence admitted as much on Wednesday. “Last week, Joe Biden said ‘no miracle is coming,’ What Joe doesn’t seem to understand is that America is a nation of miracles and we’re on track to have the world’s first safe, effective coronavirus vaccine by the end of this year.” So that’s the plan, then?  A miracle?  And how many Americans will die between now and then?  How many will die if we don’t have an effective vaccine, produced and delivered at scale, by the end of the year?  It's 1,000 Americans PER DAY at the moment!  4 more years of this is 1.46M more of us…

So this is the core of Trump’s reelection message: You should give him credit for the economic recovery he inherited from Obama. And you should blame someone else for the disastrous response to the coronavirus. Inspiring stuff!

Have a great weekend, 

- Phil

 


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  1. Phil/Imax – We have a Put(15) and BCS (10-15) expiring December. Are you planning to ride the position as Europe and Asia are opening theaters? TX


  2. Good morning!

    (1020, are you okay?)


  3. Good Morning – Where ya been?  ;)


  4. Does anyone care about what ric santelli (cnbc) has to say anymore?…..


  5. …Though I do perk up when Phil Lebeau speaks…. ;)







  6. ravi_s don't bank on it!!!


  7. TX Yodi, it's an official position so was wondering about Phil's thesis behind not closing it.


  8. Good morning!

    Another chance to short /NQ at 12,000 and /YM at 28,500.  3,500 on /ES HAS to be some resistance, right?

    Oil dipping again as the Dollar is finally bouncing off 92.20.

    IMAX/Ravi – I'm comfortable with a $15 put.  Unless we massively backslide on the virus, they should be going up from here.  Happy to roll or even own them long-term.

    Santelli/1020 – Not since 2008

    U.S. Consumer Spending Rose More Slowly in July

    Heard on the Street: Wall Street Is Looking for Inflation in All the Wrong Places 

    Coca-Cola Plans Layoffs, Offers Buyouts to U.S. Staff

    The Pandemic Is Making College Students Question the Price of Their Education

    Canada Data Point to Third-Quarter Rebound


  9. Phil/Imax- TX


  10. Sorry, meetings all morning!


  11. For the TSLA traders (gamblers) I put my foot down on NIO just not so expensive than TSLA, having a more real price and a more real potential. Sold on 8/7/20 the Jan 22 7p for 2.70. Price 13.42.

    Now the stock trades at 19.28 and I want to sell some more puts Jan 22 10 put for 3.60. You fellows might have a look at it. March 19 the stock was trading at 2.38. TSLA was trading at that day 361.00.

    Just the Clown would not like this stock!!!!


  12. And tell me that the markets are priced properly:

    Image

    What is the ratio between market value and GDP now! GDP is now lower than when Trump started!


  13. Stg  Not given much credit to the Führer, according to the graph you show it looks more like corona broke the camel’s back.
     


  14. NVDA is going real crazy today, hard to control this stock.


  15. phil / NQ short.

    up about $600 per contract! thanks for that.  How do i exit?! thankyou


  16. NIO/Yodi – Good way to hedge the TSLA shorts I guess.  

    Good chart, StJ but it uses MATH to adjust it so it will be rejected by most Conservatives.

    Corona/Yodi – We were slowing long before that.  

    GDP sinks 4.8% in the first quarter, biggest drop since 2008 and there is  worse to come - MarketWatch

    It's actually -31.7% but who's counting?

    Gross Domestic Product, 1st Quarter 2020 (Third Estimate); Corporate  Profits, 1st Quarter 2020 (Revised Estimate) | U.S. Bureau of Economic  Analysis (BEA)


  17. Getting saved yet again into the weekend. 


  18. RE: second citizenship article above – citizenship via jus sanguinis is another route for citizenship in some EU countries. If you've got parents/grandparents/great grandparents from a country on this list, it might be worth looking into:

    https://en.wikipedia.org/wiki/Jus_sanguinis#:~:text=Jus%20sanguinis%20(English%3A%20%2Fd%CA%92,of%20one%20or%20both%20parents.

    I've got an appointment with the Italian consulate a year from today. 


  19. There you go, math done:

    Infographic: Are We in a Stock Market Bubble? | Statista


  20. Dual citizenship/Atitlan – Italy, eh, nice!  Scratching my head, I think my most recent immigrant was my great-grandmother's father & mother, from Scotland. They're clan Neish, so going back to Scotland can be a little problematic. The MacNabs might say all is forgiven, but are they sincere? https://electricscotland.com/history/articles/boultachan.htm


  21. Happy to have still my EU passport for sure! And got my kids their French passport as well. You never know. Dual passport comes in handy.


  22. Strong finish to the weak.  If there's going to be a correction – it's not obvious at the moment.

    Have a great weekend,

    - Phil


  23. StJean/dual – well, I do have that (as do our kids), in Korea. My mother-in-law, when we married, wrote me into the family registry which at that time made me a citizen. It was quite a gift! I'm comfortable in Korea, speak the language fine (still learning, though, that never ends), and except for the summers I like the place. Problem is, they're not letting people in from the US right now.


  24. That's how I'm looking at the dual passport Stjean. If it's there and it's (more or less) free, I am going to take it and will find a way to make it useful to us. I only need one more document and we are good to go!

    Have a weekend all…











  25. The Week Ahead

    Before we look ahead, we should look behind as it's hard to know where your'e going if you don't remember where you've been, right?

    Despite expecting a positive boost from Powell on Thursday after the GDP report (which was a bit better than expected at -31.7% vs -32.5% in the first estimate) we aimed to remain cautious into next week's Holiday Weekend (Labor Day) when, ironically, 15M Americans will still be (officially) out of work.

    As you can see from the Nasdaq action this week, we have huge volume surges that tend to end each day on a positive note but we did have that fun 200-point drop Thursday, as Powell's plan to let inflation run wild began to draw a bit of criticism.  

    In the upcoming week, we only two scheduled Fed speakers and we'll have the Dallas Fed Report on Monday (10:30), PMI, ISM and Construction Spending (which should be strong) on Tuesday, Factory Orders and the Beige Book Wednesday, Productivity and PMI & ISM Services Thursday and the all-important Non-Farm Payroll Report Friday, which takes us into the holiday weekend.

    Now, let''s talk about last week's trade ideas:

    Northern Dynasty (NAK) had a very violent week, as we expected, opening at 0.65 on Monday and finishing the week at 0.91.  As I said in our newsletter, we've seen these swings many times before as rumors fly about the status of the project and we know to jump in when the rumors are bad and jump out when they are good but this time, we did a covered call, where we bought the stock, with a target price of 0.80, and sold the Feb $1 calls for 0.45, giving us a net entry of just 0.35.

    This worked out better than expected as we were able to buy it Monday for 0.65 all the way down to 0.58 before it bounce back on Tuesday, topping out at $1.10, which was already up 0.55 (84%) from an 0.65 entry.  Even entering at 0.80 and selling the calls, the stock is now 0.91 and the calls are 0.50 for a net of 0.41, a 12% gain for the week and well on track for our full 185% gain by February if NAK manages to recover to $1.

    While the covered call does limit our upside, it also provides us with a tremendous discount – almost 50% off the week's low at net 0.35 and THAT is why we didn't mind taking a chance on this very volatile penny stock – BECAUSE we were able to use options both to mitigate the risk and to maximize our return.  

    Now that we have that under our belt, let's look at a more advanced way to play NAK, given that you may have missed the chance to jump in during Monday's sale (which is why you need to subscribe to our newsletter, of course).  Rather than buy the stock at 0.90, we can artificially construct ownership of the stock with what is called a bull call spread.  Don't let these terms throw you – it just means we're buying a call and selling another call to make a spread – a bullish one:

    • Buy 50 NAK Feb $1 calls for 0.50 ($2,500) 
    • Sell 50 NAK Feb $3 calls for 0.25 ($1,250) 
    • ]Sell 50 NAK $1 puts for 0.58 ($2,900) 

    The net of that spread is actually a CREDIT of $1,650 and, if NAK is under $1, you will be assigned 5,000 shares at $1 ($5,000) less the $1,650 you collected is $3,350 or 0.67 – close to the week's lows!  That's our WORST case scenario – getting a 26% discount on our entry and, what would we do if we were assigned 5,000 shares at $3,350?  WE'D SELL CALLS TO LOWER OUR BASIS! 

    Aren't options fantastic?

    Now, we didn't do this spread for the low-cost fallback, we did this spread for the leverage because, if NAK gets good news and goes higher, at $3 we would get back $10,000 on our $1,650 credit for a total gain of $11,650 (706%).  That's not likely to happen and this is NOT an official trade – just a lesson in trading options for the more advanced readers – but we will get you all there over time.

    By the way, if you are sad you missed the chance to own NAK at 0.58 on Monday, no worries as there's another options trick we can use – just sell the puts!   Selling a short put obligates you to buy the stock at a certain price but the person buying the put contract to you (giving him the right to "put" his stock in your account at a fixed price) wants to make sure their losses are limited.  

    So, if you simply sell the NAK Feb $1 put for 0.50, what happens?  The put buyer is guaranteed that he can sell his stock for no less than 0.50 between now and February and they give you 0.50 now in exchange for your promise to buy the stock for $1 (more than it is now).  However, since you are collecting 0.50 up front, your net cost would be just 0.50.

    If, on the other hand, NAK goes up to $1.10 or $110, the put option expires worthless and you get to keep the 0.50 no matter what, but you don't participate in further gains.  So, the upside potential of the simple put sale is 100% – even in an IRA which would charge you full margin since it's net 0.50 and you make 0.50 so this is what we call a "margin efficient" trade – especially as it's less than 6 months to make the money.  

    See – fun!  

    We also played TQQQ, the Nasdaq 3x Ultra-Long short (yes, confusing) with a Bear Put Spread, where we bought 10 March $125 puts for for $26 and sold 10 March $96 puts for $15 which was net $11 ($11,000).   That spread is currently $38.40/28.40 so net $10 is down $1,000, which is fine as it's insurance through March – it's supposed to lose money if the market is strong.  The only problem is, we need to add some bullish bets.

    Our third trade idea last week was shorting Tesla (TSLA) and that sure didn't work out as TSLA blasted up to 2,318 before calming down SLIGHTLY to end a week where it gained 10%. 

    But our bet was not so much about shorting TSLA as it was about shorting Volatility and using the options premiums to our advantage by Being the House – NOT the Gambler.  Our TSLA trade was:

    • Buy 1 TSLA March $2,000 puts for $413 ($41,300) 

    • Sell 1 TSLA October $2,000 put for $227 ($22,700) 

    That trade was net $18,600 but our INVESTMENT is in the March $2,000 puts, and TSLA has move up 10% so that's bad for them but much, much worse for the short October puts at the same $2,000 strike – as they have less time to recover than we do.  Now the spread is net $390/192 – as we expected, the October puts are losing their premium faster than our March puts and now we are at net $19,800 – up $1,200 for the week – EVEN THOUGH THE STOCK WENT AGAINST US BY 10%.

    Aren't options fun?

    Of course TSLA didn't really "go against us" as the gist of our bet is that TSLA will be below $2,000 in March but hopefully not too far below in October so the short puts we sold expire worthless and THEN we make our profits off the long puts (see, we're one of those people buying long puts here).  

    Because we are "Being the House", we don't really care whether TSLA goes up or down – we're making our money because we're SELLING risk to the suckers who think they know what TSLA is going to do over the next 60 days.  

    Now, lets apply some of those lessons we learned and take a long position in another "risky" stock and that's IMax (IMAX), the big-screen theater company.  Movies are opening back up in China and Europe and, last year, IMAX made $77M and in Q1 they lost $50M and in Q2 they lost $26M but I don't care what they lost when they were closed because we know this is temporary. 

    I do care that they cut their losses by 50%, that makes me respect the management team and IMAX is currently selling at $15.70/share, which is just $924M for the whole company, so the PE ratio of the company's value vs a normal year is about 12 times earnings and IMAX earnings are a consistent grower.

    IMAX doesn't have long-term options (LEAPS), they only go out to March but we can mitigate our risk by selling the March puts instead of buying the stock and the March $14 puts are $2, which puts us in the stock at net $12 but I'd hate to miss the upside so we're also going to add a Bull Call spread as such:

    • Sell 10 IMAX March $14 puts for $2 ($2,000) 
    • Buy 5 IMAX March $12 calls for $5 ($2,500) 
    • Sell 5 IMAX March $15 calls for $3.25 ($1,625) 

    We still have a $1,125 credit so our worst-case is being assigned 1,000 shares of IMAX at $14 for $14,000 less the $1,125 is $12.875 or $12.875/share, which is 18% off the current price and we're happy to own IMAX there and we have a potential upside kicker of $3 x 500 options (100 per contract) for a bonus $1,500 if IMAX simply holds $15.  So if the stock holds $15, we'll make $2,625 off our initial $1,125 credit or 233%.

    BUT, if you have an IRA account, they will require margin for your full $12,875 ownership risk but that's not too bad as $2,625 is over 20% of $12,875 and that's pretty good money to make in 6 months, right?

    Note that we have the specific risk that the virus turns out to spread in theaters and IMAX is shut down for the longer term and we have the overall market risk but we're well-hedged against that and I really wanted to grab IMAX before it got away from us.

    Have a great week and enjoy the holiday, 

    - Phil







  26. Analysis: Trump continues to break the polling



  27. India’s GDP numbers could be worst in decades. What experts say





  28. Good morning!

    Underlying/Batman – Yes, that's because, due to our poor health care system, 94% of the people have underlying conditions!