Phil's Newsletter

Which Way Wednesday – Fed Edition

Things are going up, up, up – so why worry?

Things LOOK so good in the market that we've even capitulated on our CASH!!! position and moved some into new portfolios for Short-Term trades, Dividend trades and Earnings trades and our Butterfly Portfolio has always been open – as is our newer Hemp Boca Portfolio.

We wanted to go to CASH at the end of September in the old Long-Term, Short-Term and Options Opportunity Portfolios because they had done very well and we didn't want to risk it all into Earnings, Brexit, China Trade, Mid East Unrest, Impeachment and what looked like a Slowing Economy.  

The market did take a nice dive just after (or maybe because) we cashed out in early October but, since then, Brexit has been delayed, Earnings haven't been too bad, China sort of has a deal with us, the Mid East is a disaster and getting worse – but no one seems to care, Trump is being impeached and no one seems to care and the economy is definitely slowing – and no one seems to care.  

As a Fundamentalist, it's still kind of hard for me to want to take risks in this environment but I also have to go with the flow and the crowd is pouring back into equities so we'll take some quick dips, with as little risk as possible.  Our Short-Term Portfolio has the most risk but also is getting the most reward – up 16.6% for our 2nd month already on just 4 trades so far:

We're using  the STP to teach various options trading techniques to our Members.  The BKNG trade is one of our Extended Butterflies and the MJ trade is an Income Producer as we look to collect $800(ish) every quarter for an additional $6,400 over 8 quarters – it's great the way small amounts can add up.  That way, our $8,200 net cash entry drops to near zero and ANYTHING of value left in the spread becomes our profit – and it's a $45,000 spread if MJ climbs to $30 or more!  

FCX is what we call an artificial buy/write, where we use the bull call spread with the short puts in lieu of…
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Tempting Tuesday – Introducing our Dividend Portfolio

Image result for cumulative return dividend paying stocks"Dividends are very nice.

Over time, dividend-paying stocks tend to outperform the non-paying stocks by a pretty wide margin and they are an excellent way to build a retirement portfolio – even if you are off to a bit of a late start.  That's because the dividends themselves are kind of like an investing discipline – forcing you to take profits off the table on a regular basis or at least re-investing the profits into a conservative stock

Dividend stocks tend to be the one investors run to in times of trouble, making them outperformers when markets turn ugly as well.  On Friday, we initiated a Dividend Stock Portfolio, starting with a virtual $100,000 and our first 3 trade ideas were for Ford (F), Signet Jewelers (SIG) and AT&T (T) and they haven't moved much yet so it's very easy to catch up with us:

Of course, dividend stocks aren't supposed to move that much, we're not in them for the gains (hence the low strikes on the short covered calls), we're in it for those dividend payouts:

  • F is a net $5,780 entry that will be called away at $7,000 over $7 for a $1,220 (21%) gain and 0.60 ($600) per year in dividends is another 21% over two years so 42% return potential ($2,420) if Ford manages not to drop 20%.
  • SIG is a net $5,650 entry that will be called away at $13,000 for a $7,350 gain (130%) and $1.48 ($1,480) per year in dividends is another 26.2% over two years so 182.4% return potential ($10,310) if SIG does not fall $4.75 (26.7%).
  • T is a net $29,450 entry that will be called away at $35,000 over $35 for a $5,550 (18.5%) profit and the dividends are $2.04 ($2,040) per year which is another 13.8% over 2 years so 32.3% return potential ($7,590) on a very conservative target (10% below the current price).

Notice our big cash commtiment is on AT&T because it's a nice, safe stock to play and we'll pick up $7,590 in a stock we're pretty sure we'll keep for life but, overall, just these 3 stocks are going to make us…
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Monday Market Momentum – Fed Hopes Keep Things Going

AAPL $250!

That's where it looks like we're going this week as Apple (AAPL) closed at $246.58 and it up over $247 pre-market.  At $1.14Tn, Apple is just a bit more valuable than Microsoft's (MSFT) $1.074Tn valuation but Apple made $59.5Bn last year while MSFT "only" made $39Bn so AAPL is quite the relative bargain and we will see just how much of a bargain on Wednesday evening.  

That's not the only thing happening Wednesday, of course.  On Wednesday we also get our next Fed Rate Cut – or else!  Expectations are near 100% that the Fed will cut rates another quarter-point at Wednesday's meeting (2pm) and then Powell speaks at 2:30 to justify how record-low unemployment and record-high stock prices justify record-low interest rates and a record-high Fed Balance Sheet.  He'll probably use the "Chewbacca Defense".

Meanwhile, AAPL stock is up $50 since August and, as a Dow component, it ads about 8.5 points per $1 gained and that, like Chewbacca, does not make sense but it's the way the Dow is structured so that $1 gained by $1.14Tn AAPL stock has the same weighting on the index as $1 gained by $50Bn Walgreens (WBA) or $37Bn Dow Chemical (DOW).  Anyway, $50 x 8.5 is 425 Dow points and the Dow is up about 1,000 points so about half the Dow's gains are coming from Apple and that's true for the S&P and the Nasdaq as well.

We are waiting to see if other stocks pick up the slack – because that's what we'll need to break over to new all-time highs – Apple can't do it all unless it pulls a Tesla (TSLA) kind of move and pops 30% on earnings, which would be another $60 on AAPL.  Of course, that would be ridiculous but so was TSLA's gain and this weekend the company went into a full-court PR press pushing everything from Solar Panels to Trucks to keep the momentum going as Musk looks to re-capture $380, which would put Tesla at $78Bn in market cap – "only" 80 times their best-case earnings projections for 2020 ($900M).

After losing $702M in Q1 and $408M in Q2 this year, TSLA announced on Wednesday night
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Faltering Friday – Amazon and Other Earnings Not Enough to Hold S&P 3,000

We're slipping again.

Keep in mind, there's still the underpinning to the market that the Fed is going to save us next week with another rate cut on Wednesday.  40 S&P 500 companies reported mixed results yesterday with 3M (MMM), Ford (F), Twitter (TWTR), eBay (EBAY) and Amazon (AMZN) noteably cutting guidance and disappointing inverstors.   MMM said "the macroeconomic environment remains challenging" and F mentioned lower volumes in China – a theme with many companies as Chinese Consumers begin to avoid American goods altogether.  

With about 1/3 of the S&P 500 reporting so far, 81% of the companies reporting have beaten low expectations but still, we're on pace for a 4% decline from earnings a year ago, when the S&P topped out at 2,950 in October and fell to 2,350 (-20%) by Christmas.  We are still very much Cashy and Cautious and maybe this time is going to be different but down 4% from the quarter when the markets dropped 20% is a good reason to stay on the sidelines, isn't it?

Not much is happening otherwise and we're coasting into the weekend but next week, as Friday is the 1st, we get our NFP report already and the Fed has the doveish John Williams speaking at noon and 2:30 that day – so I think they think they are going to need some spin.  Other than Williams and Powell's speech on the 30th (2:30), there is no Fed Speak next week due to the meeting so we're on our own with the data – and earnings!

A lot of companies are having steep sell-offs on earnings but are they bargains or just CORRECTIONS – moving to more realistic prices.  We looked at Twitter (TWTR) yesterday and decided it was simply moving to a more realistic price after a 20% drop back to $30 and Amazon (AMZN) is now more interesting at $1,750 but that's still $880Bn in Market Cap for a company that made "just" $10Bn last year and maybe $12Bn this year, despite last night's miss.

While that's still 20% growth, $880Bn/$12Bn is 73.33 so 73x earnings is what you are paying for AMZN, a stock that is growing 20% a year – so doubling every 4 years.  That means we can expect 2024 earnings of $24Bn and 2028 earnings of
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Thursday Thrills – Key Earnings Reports Bring the Bulls Back

ImageTesla (TSLA) made money!  

Sure it was only $143M but it was enough to send the stock $8Bn higher in after hours trading, giving Elon Musk a 56x return on his book-cooking.  Well, maybe it's legitimate – who can say these days.  We sold short puts and calls in our Hedge Fund and $300 is right at the edge of our comfort zone on the calls – though we'll clean up on the puts – but now we'll have to see how it goes.  

Still, my short bias aside, $300 for TSLA is $46Bn in market cap and they lost $1.1Bn in the first half so add $143M and now they've "only" lost $957M for the year and that's still "so far" as there's no actual evidence they can put together two consecutive quarters of profit.  In fact, Revenues were down a bit but "cost cutting" led to a profit anyway – not necessarily account manipulation.

CapEx fell from $510M to $250M, for instance despite opening the China factory and ramping up production on the Model 3 and preparing for the Model Y – all things Musk claims to have accomplished without spending any money.  TSLA does now say they have $5.3Bn in cash on hand, so it would make no sense at all if they go out to raise money – there was $383M in positive cash flow, in fact.

Tesla benefited by recognizing deferred revenue — money that had been set aside because it came from customer payments for features not yet activated, such as aspects of the Autopilot system. Autopilot uses radar and cameras to drive Tesla cars with little input from drivers. In September, Tesla activated the Smart Summon feature, allowing the company to recognize some deferred revenue in the third quarter – despite many saying the feature was nowhere near ready to roll out.

Image

Tesla sold 97,000 cars in Q3 and are now guidling 360,000 for the year, at the lowest end of their 360,000-400,000 range they have been promising all year.  Also, the mix of cars has shifted to a vast majority of Model 3s, accounting for
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Which Way Wednesday?

ImageEarnings are now a mixed bag.  

75 S&P companies have reported so far and 43% (32) have beaten expectations and the ones that have missed have been hit with average 3.9% drops vs the historic 2.4% so not much tolerance for failing to hit those expectations while the ones that beat have only gone up 1.6% – indicating that good news is mainly priced into the current prices.  The Banksters have led us so far – now we have to see if Tech, Industrials, Consumer Goods, Energy and Services can hold up.  

Caterpillar (CAT) is often regarded as a good proxy for the Global Economy and they just reported earnings that are down 8% from last year on 6% lower revenues AND they lowered their guidance to the $10.90-11.40 range, which is not bad for their $133 shares, which are already 20% down from last year's highs.

Image

We like CAT but we'd like them a lot more around $110.  Yesterday, we initiated a new, $100,000 Earnings Portfolio to give us something to do while we wait for a proper correction.  As noted in yesterday's Morning Report, we went with Boing (BA) as our first official play and we added IRobot (IRBT) and Cliffs (CLF) as the day progressed:

Though BA didn't have much encouraging to say this morning, the lack of additional negatives has pushed the stock back to $350 so we're on our way to goal on that one already, which could net us a nice $13,250 (122%) profit at that level.  CLF beat by a mile at 0.33 vs 0.24 expected and, keep in mind, that's just one quarter on a $7 stock – so silly!  Our main premise there is a China deal will really get them going.  

Unfortunately, we didn't win them all and IRBT was a big disappointment as tariffs are hurting them badly.  We did think that was a possibility, which is why we did not sell puts initially but now we will sell 5 of the 2022 $35 puts for $10 ($5,000) and then spend $5 ($5,000) or less to roll the 2022 $45 calls down
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Toppy Tuesday – S&P Back to 3,000 – Again

Can things get worse for Boeing (BA)?

Since Thursday's close, BA has dropped $40, from $370 to $330 and that's 10.8% in two sessions so we'll watch the $333 line (10%) to see if they can getg back over that and then we'd look for a weak bounce at $340 and a strong at $348 but the news on BA has been very, very bad with two downgrades yesterday as rumors came out that BA had lied to regulators – leading to hundreds of deaths.

BA booked a $5.6Bn charge in Q2 and estimated the 737 Max grounding would cost them $8Bn overall but that was before the new revelations.  BA makes $10Bn a year, usually, but lost $3Bn last quarter and they will report again tomorrow – so get ready for some fireworks.  It's very unlikely we'll hear that "all is well" tomorrow and it's too risky to play short puts in this environment but, we can still play for an eventual recovery with a Bull Call Options Spread as the first trade in our new Earnings Portfolio:

  • Buy 5 BA 2022 $300 calls for $72.50 ($36,250)
  • Sell 5 BA 2022 $350 calls for $50 ($25,000) 

That's net $11,250 on the $25,000 spread that is currently over $15,000 in the money so, if BA gets back over $350 by Jan, 2022, you will make $13,750 (122%), which is not bad money for 2 years.  If BA is flat or goes lower, we can begin to recoup our money by selling short calls, like the Jan $330 calls, which are $20.  Just selling 1 contract for those puts $2,000 in our pocket and we have 8 quarters to sell so it's very possible we can generate $16,000 worth of income while waiting for our $13,750 pay-off!

We decided to make a new $100,000 Earnings Portfolio, mostly for quick trades duing the season as we are mainly in cash and have plenty to play with.  Yesterday, in our Live Member Chat Room, I suggested the following trade on TD Ameritrade (AMTD):

Let's make an Earnings


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Just Another Manic Monday

Image result for redeye flightIt's one long Sunday for me as I just flew in from California.

I left at 10pm, didn't sleep on the plane and now it's 8am and I find myself essentially continuing what I was saying last Monday (14th), when we flatlined at 2,965 after a very bad Friday sell-off.  This Friday was not as bad, with the S&P finishing at 2,986 and we're still flirting with 3,000 – again.  So it's the same old, same old with not much having changed over the weekend so earnings will be our primary focus for the week.

Lots of fun reports already and, so far, earnings have beaten low expectations, for the most part and we're into the meat of the S&P 500, with about 1/4 of the index reporting this week:

Image

Image

We'll keep an eye on the Tech Sector as the earnings there have been pretty erratic.  Semiconductors rose 6.74% in Q3, topping all six industries in Tech.  Semis are followed by Technology Hardware (+5.26%) in second place and IT Services (-3.19%) at a distant third. The worst Tech Sector Performer has been Software, whose quarterly return stands at a negative 16.3% but still many companies to report.  

In June, Goldman Sachs issued a warning to “write off high-growth tech stocks,” according to a CNBC report – this was not heeded by the market as the Nasdaq is up about 800 points (10%) since June.  The reasons for Goldman’s warning are double: they said that Technology stocks may be overvalued at their current levels, and that talks about potential regulatory changes from Washington may make stocks within the sector something of a “hazard.”

Keep in mind it's not about justifying the 10% move up from 7,200 (thowing out the spike) in the June dip but justifying the ENTIRE 60% move from 5,000 in the beginning of 2017 to 8,000 today.  We ran an analysis of the top Nasdaq stocks back on April 17th, looking at whether or not the Nasdaq could justify 8,000 and we thought it could – and that was our bullish premise at the time but we cashed
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Friday Market Follies – Flirting with 3,000 into the Weekend

Here we are again. 

The S&P 500 is back to 3,000, the Dow 27,000, Nasdaq 7,950 and Russell 1,550 so all is well(ish) for the moment.  Earnings have been, so far, on track for most of our early reporting companies but notable misses from big companies like AA, GS, UNP and ERIC have kept investors slightly concerned while the economic reports have generally been trending down

We'll see the Leading Economic Indicators Report at 10am but it doesn't really matter as we have Kaplan at 9, George and Kaplan at 10, Kashkari at 10:30, Clarida at 11:30 and Kaplan again at 5pm so whatever message Kaplan is selling is one the Fed is looking to make sure is repeated over and over again.  

I'm not sure what they are doing with Kaplan as his 9am is supposedly in Washington, DC while his 10am is scheduled for Denver but he's an economist, not a physicist – so he probably doesn't know that's not physically possible…  On Wednesday, Kaplan said the Fed was "actively debating issuing a digital currency" so BitCoin fans may want to pay attention to his speeches as well.  

Kaplan also "admitted" what I've maintained for years – that the Fed's ZIRP policy is a reaction to the US Government's $23 TRILLION in debt because each 1% of interest paid on bonds now translates to $230Bn out of the Government's budget.  Kaplan also noted: “People around the world are working real hard to try to find alternatives to dollars and dollar infrastructure because the more they’re invested in that, the more susceptible they are to sanctions, tariffs and what’s going on right now.”   

ImageIn other words, Trump's erratic behavior is now threatening the Dollar's role as the World's reserve currency – Putin couldn't have done more damage to our country if he had bombed us than Trump has done – and this mess can't be cleaned up easily.  Losing our status as the World's reserve currency could put us just a step or two away from bankruptcy – just like companies with too much debt that get downgraded are thrown into chaos.

Meanwhile, China's GDP dipped to 6% and that's the official number – it's…
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Thrilling Thursday – A Brexit Deal (sort of) Brings Us back to 3,000 (again)

Image result for schrodinger's brexitIsn't this fun?  

IBM had a big miss, Netflix had a big beat, the indexes and futures are all over the place and Boris Johnson has Schrodinger's Brexit but he dares not look in the box because – as long as he doesn't, he has a deal that is dead and alive at the same time – which is quite the sweet spot for a politician – very much like Trump's secret China deal we are still waiting for the details of.  

Nonetheless the US Futures are back to yesterday's highs but that was based on the "Deal" that was touted at the EU open (3am, EST) but has already fallen apart as details are painting a less enthuiastic picture than we had overnight.  That doesn't stop our beloved S&P from testing 3,000 though – so it makes a great short below that line (/ES Futures) with tight stops above.  

We get the Philly Fed Report at 8:30, which is likely to be trending down from last monh's 12 and Industrial Production is likely to slip into contraction while Capacity Utilization was already a miserable 77.9% so 22.1% of our capacity is already idle – not a good thing at all…   There's also some housing data but that's it until tomorrow's Leading Economic Indicators (probably flat) along with China's GDP and we have 6 Fed Speeches tomorrow, so we'll probably finish the week at the 3,000 line – somehow – so quick profit-taking on the /ES shorts. 

On Tuesday at 11am, we put out a Top Trade Alert to our Members for the Marijuana ETF (MJ) at $18.40, which we added to our Short-Term Portfolio with the following spread:

  • Sell 10 MJ 2022 $20 puts for $5.40 ($5,400)
  • Buy 30 MJ 2022 $15 calls for $7 ($21,000) 


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Phil's Favorites

Firearm-makers may finally decide it's in their interest to help reduce gun violence after Sandy Hook ruling

 

Firearm-makers may finally decide it's in their interest to help reduce gun violence after Sandy Hook ruling

The popularity of semiautomatic rifles increases the risk that mass shootings result in multiple deaths. AP Photo/Jae C. Hong

Courtesy of Timothy D. Lytton, Georgia State University

Mass shootings have become a routine occurrence in America.

Gun-makers have long refused to take responsibility for their role in ...



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Digital Currencies

Is Bitcoin a Macro Asset?

 

Is Bitcoin a Macro Asset?

Courtesy of 

As part of Coindesk’s popup podcast series centered around today’s Invest conference, I answered a few questions for Nolan Bauerly about Bitcoin from a wealth management perspective. I decided in December of 2017 that investing directly into crypto currencies was unnecessary and not a good use of a portfolio’s allocation slots. I remain in this posture today but I am openminded about how this may change in the future.

You can listen to this short exchange below:

...



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Zero Hedge

As Regulators Stonewall Libra, Facebook Rolls Out New Payment System

Courtesy of ZeroHedge

Authored by Joeri Cant via CoinTelegraph.com,

As the Libra stablecoin project continues to face a hostile audience of regulators, Facebook launches a new fiat payment system called Facebook Pay.

image courtesy of CoinTelegraph

Empower people everywhere to buy and sell things online ...

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Kimble Charting Solutions

Silver Testing This Support For The First Time In 8-Years!

Courtesy of Chris Kimble

Its been a good while since Silver bulls could say that it is testing support. Well, this week that can be said! Will this support test hold? Silver Bulls sure hope so!

This chart looks at Silver Futures over the past 10-years. Silver has spent the majority of the past 8-years inside of the pink shaded falling channel, as it has created lower highs and lower lows.

Silver broke above the top of this falling channel around 90-days ago at (1). It quickly rallied over 15%, before creating a large bearish reversal pattern, around 5-weeks after the bre...



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Insider Scoop

Stocks That Hit 52-Week Highs On Wednesday

Courtesy of Benzinga

This morning 69 companies reached new 52-week highs.

Interesting Facts:
  • The largest company by market cap to set a new 52-week high was Apple (NASDAQ: AAPL).
  • The smallest company when looking at market cap to set a new 52-week high was Fast Lane Holdings (OTC: FLHI).
  • Liberty SiriusXM Gr (NASDAQ: LSXMK) made the biggest move downwards of the group, plummetting 15.33% shortly after reaching its 52-week high.

The follow...



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The Technical Traders

Welcome to the Zombie-land Of Investing - Part II

Courtesy of Technical Traders

In Part I of this research post, we highlight how the ES and Gold reacted 24+ months prior to the 2007-08 market peak and subsequent collapse in 2008-09.  The point we were trying to push out to our followers was that the current US stock market indexes are acting in a very similar formation within a very mature uptrend cycle.

We ended Part I with this chart, below, comparing 2006-08 with 2018-19.  Our intent was to highlight the new price hig...



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Chart School

Gold Gann and Cycle Review

Courtesy of Read the Ticker

Gold has performed well, golden skies are here again. In fact it has been a straight line move, and this is typically unusual and a pause can be expected.

It seems the markets are happy again, new highs in the SP500, US 10 year interest rates look to re bound, negative interest may soften. The US FED has reversed their QT and now doing $250BN (not QE) repo. The main point is the FED has stopped QT, and will do QE forever. The evidence now is the FED put is under market risk and the possibility of excessive losses do not exist. 

Point: If in future if there is market risk, the FED will print it's way out of it.
Subject To: In this blog view. The above is so until the amount required rocks confidence in the US dollar as a reserve currency.&n...



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Lee's Free Thinking

Today's Fed POMO TOMO FOMC Alphabet Soup Unspin

Courtesy of Lee Adler

But make no mistake, if the Fed wants money rates to stay down by another quarter, it will need to imagineer even more money.

That’s on top of the $281 billion it has already imagineered into existence since addressing its “one-off” repo market emergency on September 17. This came via  “Temporary” Repo Man Operations money, and $70.6 billion in Permanent Open Market Operations (POMO) money.

By my calculations that averages out to $7.4 billion per business day. That works out to a monthly pace of $155 billion or so.

If they keep this up, it will be more than enough to absorb every penny of new Treasury supply. That supply had caused the system to run out of money in mid September.  This flood of paper had been inundati...



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Biotech

The Big Pharma Takeover of Medical Cannabis

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

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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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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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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