Author Archive for ilene

No Free Lunch: Valuation Determines Return

 

Source: Pixabay

No Free Lunch: Valuation Determines Return

By John Mauldin, Thoughts from the Frontline

Last week, I described the enormous challenges retirees face. One reason for that, aside from insufficient savings, is that markets haven’t delivered the returns many experts said we could plan on.

Back in the late 1990s, we were told that the long-term average return (~10%) was a reasonable long-term assumption—even if the market cooled down from the tech boom. Instead, the S&P 500 index gained about 3% annually since 1999 with total return just over half of the historical average. As a result, Baby Boomers are having to work longer and harder to retire, as well as save more of their income.

Nonetheless, hope still springs eternal for historically average returns. In this week’s letter, longtime friend Ed Easterling joins me as co-author to explore the reasons that so many analysts and product purveyors pitch such hopeful expectations. (Longtime readers will know Ed and I do this periodically.) We’ll show how the long-term average is a longshot bet in almost any market environment. Most of the time, returns over a decade or two are well-above or well-below average.

Most of all, it’s fairly predictable which side of average will occur. This has serious implications, yet there’s a lot that you can do to still achieve investment success. This is also something you will not hear from many in the investment business. “Predicting” less than historical average returns in the future is not exactly a great sales pitch. But as I think Ed and I will demonstrate, it is the most honest and accurate way to talk about potential performance of the future.

Ed founded Crestmont Research in 2001 to research and explain secular stock market cycles. You can find a treasure trove of fabulous charts and articles on cycles and market returns at his www.CrestmontResearch.com website. I’m a big fan of Ed’s work and highly recommend both of his books, especially Unexpected Returns.

Before we jump in, let me quickly remind you that registration for the Strategic Investment Conference (May 13–16 in Dallas) closes Saturday night, March 16. As of now, we still have a few seats left, but they are going…
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College admission scandal grew out of a system that was ripe for corruption

 

College admission scandal grew out of a system that was ripe for corruption

File 20190313 86696 2gnvbm.jpg?ixlib=rb 1.1

Recruited athletes often get a leg up in the admissions process. Catwalk Photos/www.shutterstock.com

Courtesy of Rick Eckstein, Villanova University

As part of the “Operation Varsity Blues” case that federal prosecutors announced March 12, dozens of people – including Hollywood actresses and wealthy businessmen – stand accused of having bought their children’s way into elite colleges and universities.

As a researcher who has studied how young athletes get admitted to college, I don’t see a major difference between this admission fraud case and how many wealthy families can buy their children’s way into elite colleges through “back” and “side” doors.

In my research, I show how most intercollegiate sports are fed by wildly expensive “pay to play” youth sports pipelines. These pipelines systematically exclude lower income families. It takes money to attend so-called “showcase tournaments” to get in front of recruiters.

In many ways, then, those ensnared in the current criminal case – which alleges that they paid for their children to get spots on the sports teams of big name schools – couldn’t have succeeded if the college admissions process wasn’t already biased toward wealthier families.

Bypassing the front door

Even if college sports is taken out of the equation, the college admissions process already favors wealthy families in a variety of ways.

It has long been known that higher family income usually correlates with higher standardized test scores. There are many test prep companies, including some that guarantee higher scores for approximately US$1,000. Taking advantage of test prep may not be “fraud.” But it certainly provides advantages to the wealthy that have little to do with academic merit.

In his book “The Price of Admission,” Daniel Golden highlights a number of other ways wealthy families can buy their way into elite universities. These include large donations, financing new buildings, creating endowments and playing on parents’ celebrity status. These also have little to do with an applicant’s academic merit, but would never be considered criminal.

Sociologist David Karen has documented how attendance at expensive boarding schools gives…
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How to prevent the ‘robot apocalypse’ from ending labor as we know it

 

How to prevent the 'robot apocalypse' from ending labor as we know it

File 20190308 82681 1wui77w.gif?ixlib=rb 1.1

The future of work could look more like this. BigBlueStudio/Shutterstock.com

Courtesy of Thomas Kochan, MIT Sloan School of Management and Elisabeth Reynolds, Massachusetts Institute of Technology

It seems not a day goes by without the appearance of another dire warning about the future of work.

Some alarmists fear a “robot apocalypse,” while others foresee the day of “singularity” coming when artificial intelligence exceeds human intelligence. Still others warn that income inequality will continue to rise as owners of capital capture more of the benefits of innovations than those who labor for a living.

Yet there is also a counter-trend emerging: Groups as diverse as the World Economic Forum and the International Labor Organization are beginning to argue that it’s up to society to shape the future of work. What’s needed is action today to harness and channel technological changes, prepare the workforce for new demands and opportunities, strengthen their voices and built a new social contract that includes leaders in business, education, labor and government.

These are some of the issues we’ll be discussing in an online course that draws on some of the best experts in AI, robotics, economics and employment relations at MIT and around the world. Our main point is that avoiding apocalyptic outcomes requires bold actions and a collaborative approach.

How to shape change

Virtually every technological revolution has inspired workers to fear for their jobs. And for good reason.

Each one resulted in the creation of new jobs alongside the elimination of others. At the same time, new technologies changed the way work is done within most occupations.

But fighting technology-inspired changes, as the Luddites of the early 19th century did, rarely works – and can in fact have disastrous consequences. The Luddites, textile workers and weavers who feared the advent of automated looms in England, destroyed machines and burned factories, hoping to arrest their advance. The government eventually quashed the unrest, killing some workers and jailing many others.

The new technologies that transformed the textile industry continued unabated. While…
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Automated control system caused Ethiopia crash, flight data suggests

 

Automated control system caused Ethiopia crash, flight data suggests

File 20190315 28483 ks4bzt.jpg?ixlib=rb 1.1

Wreckage from Ethiopia Airlines Flight 302 lies near the crash site outside Addis Ababa. AP Photo/Mulugeta Ayene

Courtesy of Timothy Takahashi, Arizona State University

Emerging evidence from the recent crash in Ethiopia suggests that malfunctioning automatic control systems overwhelmed the crew and doomed the flight. Based on my analysis, it appears that the Ethiopian Airlines crew followed the standard procedures found in the Boeing 737 pilots operating handbook and flight crew operations manual.

A typical flight starts with manual control of the plane. The pilot and co-pilot will personally steer the aircraft onto the taxiway, configure the flaps for takeoff, actively control the aircraft as it accelerates down the runway, and smoothly pull back on the control yoke to lift the plane off the ground and into flight. The flight’s altitude and speed data, transmitted from the plane in real time and made available to the public by FlightRadar24.com, shows that happened normally as Ethiopian Airlines Flight 302 left the runway.

Everything appears to have gone as usual on the initial climb away from the takeoff, too. Normally, the pilot will retract the landing gear and maintain a relatively steady speed as the aircraft climbs. The plane might accelerate slightly until it’s going fast enough that the flaps – extended to increase lift at lower speeds – can be safely retracted, letting the wings themselves generate the necessary lift. This process usually takes place in the first minute after takeoff. Once the aircraft has climbed to 1,000 feet above the ground, the pilot will engage the autopilot system.

That’s the point at which the computer takes over – and where, my analysis of the data suggests, things went wrong for Ethiopian Airlines Flight 302. A modern autopilot system gives the computer command of the engine throttles, rudder, elevators and ailerons – basically full control over the aircraft.

Simulating the expected flight

Using modeling tools developed by my research team, I recreated a hypothetical flight profile to simulate the Ethiopian Airlines 737 departure based on the handbook procedure for an identical plane…
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Trade wars are growing over the digital economy – and developing countries are shaping the agenda

 

Trade wars are growing over the digital economy – and developing countries are shaping the agenda

File 20190314 28468 14jz4oo.jpg?ixlib=rb 1.1

Shutterstock

Courtesy of Christopher Foster, University of Manchester and Shamel Azmeh, University of Manchester

At the heart of the current US trade war with China is tariffs on imports like steel, sorghum and silicon chips. But, with the growing role of data and digital technology in the world economy, a new arena of digital trade conflict is on the cards.

Rapid growth in e-commerce, cloud computing, and other parts of the digital economy are driving important shifts in the global economy. Digital firms are today among the leading global companies. Meanwhile, firms in all sectors are incorporating digital tools into their business models.

But the growth and globalisation of the digital economy is still not underpinned by clear global regulatory frameworks. While there are clear rules governing trade in goods such as books and DVDs, it is still not clear what happens when these goods become digital and are transmitted across borders through platforms such as Netflix. Similarly, while we have clear rules on goods like cars, TVs and industrial machinery, we lack clear regulations on the data that these goods increasingly collect and transmit.

The desire to put rules in place on digital trade is gaining momentum. This has grown as a number of countries, such as China, Indonesia and Nigeria, which have introduced policies that legislate against foreign data flows and e-commerce, affecting the business models of leading global digital corporations. A new push came during the World Economic Forum in Davos earlier this year when 76 countries announced plans to begin negotiations on digital trade.

Digital divide

Behind the agenda to introduce global rules on digital trade, there are significant tensions that could spill over into conflict. On one side is the US and a number of leading digital nations, backed by the vast lobbying power of Silicon Valley and big business. On the other side, a number of emerging and developing countries are looking to resist new rules that they see as adding extra burden on them, with vague benefits.

Leading digital firms, and other big companies using digital…
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All Boeing 737 MAX flights grounded – and travellers could feel it in the hip pocket

 

All Boeing 737 MAX flights grounded – and travellers could feel it in the hip pocket

Courtesy of Chrystal Zhang, Swinburne University of Technology

With investigations under way into two crashes of Boeing’s 737 MAX 8 aircraft, the US manufacturer has caved to pressure and grounded the entire global fleet totalling 371 planes. That includes both model 8 and 9 versions of the aircraft.

The company issued a statement saying this occurred:

… out of an abundance of caution and in order to reassure the flying public of the aircraft’s safety.

But the impact on passengers and air travel could last for months as airlines try to reschedule flights and seek other aircraft to meet demands. While things are still evolving, what should you anticipate as a traveller?

Everybody down

US President Donald Trump’s order on Wednesday prompted the Federal Aviation Authority to ground all 737 MAX aircraft flying in and out of the US.

While it is legitimate for a government to issue regulatory orders to intervene in an airline’s operation due to safety or security concerns, it is unprecedented that such a large number of countries are taking action.

At least 45 International Civil Aviation Organisation member states had already either ordered their airlines to ground 737 MAX aircraft, or suspended entry of such planes into enter their airspaces.

Countries affected include China, Indonesia, Germany, UK, France, the Netherlands, Singapore, Australia, New Zealand, Canada and now the US.

While investigations into the two crashes could last for months or even years before any conclusion is drawn, the length of suspension is also unknown at this stage.

Yet holiday seasons such as Easter and school vacations are approaching, and many of us will no doubt be looking to fly away for a break.

Expect disruption

Airlines face disruption almost every day: airline operation is a complex system. Disruption can be caused by unforeseeable weather conditions, unexpected technical or mechanical issues of an aircraft, or associated safety hazards or security concerns.

Airlines therefore have strategies in place to manage or at least mitigate the effect…
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Why a college admissions racket would funnel bribes through a fake charity

 

Why a college admissions racket would funnel bribes through a fake charity

File 20190314 28502 tm2q7k.jpg?ixlib=rb 1.1

Many people aided by the campus admissions scheme wanted to attend the University of Southern California. AP Photo/Reed Saxon

Courtesy of Sarah Webber, University of Dayton and Deborah Archambeault, University of Dayton

Federal authorities are prosecuting dozens of suspects in the biggest college admissions scandal ever exposed. The joint FBI and IRS investigation, dubbed “Operation Varsity Blues,” uncovered millions of dollars in bribe money wealthy parents are accused of paying to sneak unqualified children into Stanford, Yale and other elite universities on the pretext that they were star athletes with high standardized test scores.

William “Rick” Singer has pled guilty to committing fraud as the head of a college counseling and preparation business and a sham charity, acting as the ringmaster of the entire web of wrongdoing. He is cooperating with the authorities. Among the many interesting details to emerge have to do with how Singer’s company allegedly funneled much of the US$25 million his clients paid in unusually high fees for guidance counselor services through the nonprofit Key Worldwide Foundation, possibly to deflect attention.

We are accounting scholars who research nonprofit fraud. Our data indicate that outright fake charities like this one seem to be less commonly detected than other kinds of nonprofit fraud, such as when real charities get swindled through embezzlement schemes by rogue bookkeepers and the like. Our research also sheds light on why Singer and his dozens of accomplices allegedly got away with their scheme for years.

Rick Singer has pleaded guilty to charges in the college admissions bribery scandal. AP Photo/Steven Senne

Sources of scrutiny

There are federal and state authorities whose job it is to catch and prosecute fraudulent charities and fake donations. The Internal Revenue Service’s Tax Exempt Government Entities division is in charge of granting nonprofit status through reviews of tax exempt status applications. This division also monitors compliance with tax filings requirements and audits of nonprofits.

But as…
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Sandy Hook lawsuit court victory opens crack in gun maker immunity shield

 

Sandy Hook lawsuit court victory opens crack in gun maker immunity shield

File 20190314 28471 1ngs29c.jpg?ixlib=rb 1.1

A detective holds a Bushmaster AR-15 rifle, the same type of gun used in the Sandy Hook School shooting. AP Photo/Jessica Hill

Courtesy of Timothy D. Lytton, Georgia State University

The Connecticut Supreme Court ruled on March 14 that families of the Sandy Hook Elementary mass shooting victims could proceed with a lawsuit against the companies that manufactured and sold the semiautomatic rifle used in the attack.

The ruling, which reversed a lower court’s decision, has the potential to unleash a flood of claims by gun violence victims against gun manufacturers – if it’s upheld by the U.S. Supreme Court, that is.

My research on the history of lawsuits against the gun industry has documented the failure of gun violence victims to hold gun manufacturers liable for legal marketing practices that many people consider irresponsible. The latest Sandy Hook decision could pave the way for gunmakers to finally be held responsible for them.

Interpreting ‘applicable’

A 2006 law called the Protection of Lawful Commerce in Arms Act grants gun manufacturers immunity from lawsuits that arise out of the criminal misuse of a weapon.

The Sandy Hook families argued that their lawsuit fell under an exception to this federal immunity. The exception allows gun violence victims to sue a manufacturer who “knowingly violated a state or federal statute applicable to the sale or marketing” of a firearm.

The families claimed that Remington Arms “marketed, advertised and promoted the Bushmaster XM15-E2S for civilians to use to carry out offensive, military style combat missions against their perceived enemies.” They said that this marketing constituted an unfair trade practice under Connecticut law, which they argued is a state statute “applicable” to the marketing of a firearm.

The Connecticut high court agreed and, importantly, interpreted the term “applicable” broadly. That is, the court said that a relevant statute only had to be “capable of being applied” to gun sales, not that the law needed be specifically about firearms, as other courts had held.


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Monopolies Consumers Love

 

Monopolies Consumers ??

Courtesy of 

The Hill asked me to weigh in on Senator Elizabeth Warren’s proposal to break up America’s biggest and most successful tech companies. I think she makes some valid points about the advantages that each of them have, but the issues with Apple are very different from the issues with Facebook, the Google conundrum is not the same as what’s happening at Amazon. What rule could possibly be written that would address these issues in a targeted way, without a whole host of unintended consequences?

Additionally, consumers say one thing about privacy but then don’t seem to actually care at all based on their own behavior.

Here’s my take:

Actually, consumers love Big Tech, even if they say they don’t (The Hill)

 





Facebook’s ‘pivot’ is less about privacy and more about profits

 

Facebook's 'pivot' is less about privacy and more about profits

File 20190312 86696 1o8mzvk.jpg?ixlib=rb 1.1

Facebook CEO Mark Zuckerberg is trying to bolster his embattled company. AP Photo/Andrew Harnik

Courtesy of Bhaskar Chakravorti, Tufts University

Facebook’s founder and CEO Mark Zuckerberg’s latest promise is that his social media conglomerate will become a “privacy-focused” one. By turns lauded and lambasted, this move does not quite address users’ primary problems with the company.

His move is the pragmatic shift of a CEO toward where the market is already headed. Ironically, Zuckerberg’s announcement provides more evidence for Facebook critics who say the company doesn’t understand even the concept of user privacy.

Zuckerberg has chosen an interesting metaphor to describe this change. He claims that people are shifting from publicly broadcasting their activities and views in a digital “town square” – and would rather discuss issues in a more secure, privacy-protective online “living room.” His company already owns platforms representing both venues: Facebook is the town square, the largest platform for sharing widely, and WhatsApp is the living room, the largest platform for sharing in small groups.

As a former partner in McKinsey’s strategy practice and now, as a scholar of strategy at Tufts’ Fletcher School studying the effects of digital technologies in 80 countries, I have been analyzing Facebook’s changing strategies for several years. I see Zuckerberg’s latest move as Strategy 101: a market-driven shift of focus. That, by itself, is welcome. What is not so laudable is trying to package the move as a revolutionary solution to his company’s widespread problems with privacy, facilitating fake news and underhand deals to share user data.

Worse, the changes will be difficult to execute and will not happen soon – or at least not soon enough for many users.

Driven by market forces

The writing is already on Zuckerberg’s wall: Users are leaving the town square and filling living rooms. U.S. Facebook users’ activity dropped in late 2018, while WhatsApp and Messenger activity grew.

Zuckerberg is merely preparing to shift resources to follow users from one platform to the other. However, Facebook’s business model dictates that the company…
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Phil's Favorites

Small brewers show how craft principles could reshape the economy - but they're under threat

 

Small brewers show how craft principles could reshape the economy – but they're under threat

shutterstock.

Courtesy of Maikel Kuijpers, Leiden University; Catalin Popa, Leiden University, and Jochem Kroezen, Cambridge Judge Business School

Our economy currently relies heavily on unsustainable industrial principles of mass scale, never-ending growth and throwaway consu...



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Zero Hedge

Dollar, Bond Yields Plunge As Fed Folds

Courtesy of ZeroHedge. View original post here.

The Fed surprised dovishly and markets are reacting as expected...

The Dollar is getting hammered...

Treasury yields are tumbling - 30Y back below 3.00%...

Following the lower trajectory of The Fed's rate path...

And stocks are bid...

...



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ValueWalk

Feds Last Weapon ... "Empty Words"

By CapitalTrading. Originally published at ValueWalk.

The all-powerful FOMC meets and will provide us with mostly conjecture as to their continued waffle of a monetary policy. It was just a few months ago the FOMC was calling for 4 rate hikes in 2019, my how things have changed, we will be lucky to get one. The combination of balance sheet reduction and lack of global real sustainable growth has led the FOMC to produce nothing short of one’s tail between the legs. Defeated and dejected and spit out of the mouth of the even more powerful global bond markets, who have most certainly called the Fed’s bluff on their rate hikes. What do we mean? Well the yield curves have steepened and 10yr yields have consistently tested ...



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Kimble Charting Solutions

Banks Sending Warning Sign To Broad Markets Again?

Courtesy of Chris Kimble.

The financial / banking sector is often a good barometer of the economy and broader stock market.

So when the Bank Index (BKX) began to lag late last summer, it was an early warning sign for investors.

Looking at the chart below, we can see that the banks spilled lower with the December correction. That final swoon lower was set up by a bearish reversal candlestick (1).

Well, the recent rally has brought stocks back up to the scene of that crime! That area is marked by strong horizontal resistance.

Are banks creating a similar reversal ...



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Insider Scoop

Sage's First-Of-Its-Kind Postpartum Depression Drug Clears FDA Hurdle: What You Need to Know

Courtesy of Benzinga.

Shares of mid-cap biotech SAGE Therapeutics Inc (NASDAQ: SAGE), which focuses on therapies for central nervous system disorders, were trading higher Wednesday.

What Happened

Sage ...



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Chart School

RTT browsing latest..

Courtesy of Read the Ticker.

Please review a collection of WWW browsing results. The information here is delayed by a few months, members get the most recent content.



Date Found: Thursday, 20 September 2018, 03:14:19 PM

Click for popup. Clear your browser cache if image is not showing.


Comment: Money rushing into US only stocks IS NEVER A GOOD SIGN, as the informed money now have a uniformed buyer to sell too!



Date Found: Sunday, 23 September 2018, 03:02:29 PM

Click for popup. Clear your browser cache if image is not showing.


Comment: Hedge Fund Legend Ray Dalio On The Economy...



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Biotech

Marijuana is a lot more than just THC - a pharmacologist looks at the untapped healing compounds

Reminder: We are available to chat with Members, comments are found below each post.

 

Marijuana is a lot more than just THC - a pharmacologist looks at the untapped healing compounds

Assorted cannabis bud strains. Roxana Gonzalez/Shutterstock.com

Courtesy of James David Adams, University of Southern California

Medical marijuana is legal in 33 states as of November 2018. Yet the federal government still insists marijuana has no legal u...



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Digital Currencies

Facebook's cryptocurrency: a financial expert breaks it down

 

Facebook's cryptocurrency: a financial expert breaks it down

Grejak/Shutterstock

Courtesy of Alistair Milne, Loughborough University

Facebook is reportedly preparing to launch its own version of Bitcoin, for use in its messaging applications, WhatsApp, Messenger and Instagram. Could this “Facecoin” be the long-awaited breakthrough by a global technology giant into the lucrative market for retail financial services? Or will...



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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

...

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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.

Market Shadows >>