Archive for the ‘Topic’ Category

Black Hole Investing

 

Black Hole Investing

Courtesy of John Mauldin, Thoughts from the Frontline 

Scientists say the rules change in a cosmic “black hole” at what astrophysicists call the event horizon. How do they know that? Not by observation, since what happens in there is, by definition, un-seeable. They infer it from the surroundings, which say that the mathematics of the universe as we understand them change at the event horizon.

Or maybe not. One theory says we are all inside a black hole right now. That could possibly explain a few things about central bank policy.

Last week I showed you Ray Dalio’s latest Three Big Issues article. To recap, Ray says we are now in a world where…

  • Central banks have limited ability to stimulate growth as we approach the end of a long-term debt cycle.
  • Wealth and political polarity are producing internal conflict between the rich and poor as well as between capitalists and socialist.
  • There is also external conflict between a rising power (China) and the existing world leader (the USA).

The world last saw this combination in the 1930s, which is not comforting, to say the least. But as I said, we can get through this together if we approach it wisely. That’s a big “if,” given the ways some investors behave at cyclical peaks, but people will do what they do. We can only control our own actions, and today I want to talk about some we can take.

We are approaching the black hole, which means we can’t rely on previously reliable strategies. Let’s start with a jolt of reality.

Realistic Forecasts

As investors we have to make assumptions about the future. We know they will likely prove wrong, but something has to guide our asset allocation decisions.

Many long-term investors assume stocks will give them 6–8% real annual returns if they simply buy and hold long enough. Pension fund trustees hire consultants to reassure them of this “fact,” along with similar interest rate and bond forecasts, and then make investment and benefit decisions.

Those reassurances are increasingly hollow, thanks to both low rates and inflated stock valuations, yet people running massive piles of money behave


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A Behavioral Prescription

 

A Behavioral Prescription

Courtesy of 

There have been 17 separate 5% pullbacks since stocks bottomed in 2009. Each one of them felt like the top.

Okay, this is just a bit hyperbolic, but for people who don’t work in the financial services industry, the chart below shows some of the headlines and quotes they might have read when they opened their computer during market declines. Note that each of these 17 items were pulled from the day of the bottom. (Click to enlarge)

It’s hard to see headlines like this and not act on them. We know now that our worst fears did not come to pass, but there was no way to know at the time that each and every one of these pullbacks would resolve themselves to the upside.

One of the worst things that investors can do is overreact to market volatility. It’s perfectly normal to feel something, but adopting an all in or all out* mentality when the market goes up and down is destined to fail. What if, instead of going to cash every time the market pulls back, you simply get a little more defensive. Sure it will cost you money, but it will keep you in the game. The chart below shows 3 lines, via the data god

  • A 60/40 portfolio (blue)
  • A 60/40 portfolio that flips to 40/60 every time the S&P 500 has an x% pullback, and flips back to 60/40 when the S&P 500 makes a new all-time high (green)
  • A 60/40 portfolio that goes to cash every time the S&P 500 has an x% decline and moves back to 60/40 when the S&P 500 makes a new all-time high

Going from 60/40 to 40/60 when you get anxious is approximately a million times smarter than running to cash and waiting for the dust to settle. You can see this in the numbers below.

Going to cash every time stocks fall isn’t just expensive, it’s mentally crippling. You start hoping the market confirms your views and goes a lot lower. And


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Why crowdfunding may not be the great democratising force in investment after all

 

Why crowdfunding may not be the great democratising force in investment after all

Shutterstock

Courtesy of Colin Mason, University of Glasgow; Annaleena Parhankangas, Iowa State University, and Hans Landström, Lund University

The digital revolution has had a huge impact on the way new and small companies are financed – and crowdfunding has been at the forefront. In little over a decade, it has emerged to become an important source of funding for entrepreneurs who are increasingly financing their ventures by attracting small amounts of money from large groups of individuals.

Typically this works via a crowdfunding platform such as Kickstarter, Funding Circle or Seedrs, which seek to bring entrepreneurs and investors together. But some businesses make a direct appeal to investors via their own fundraising platforms, such as their website.

Initially, crowdfunding brought great optimism that it would have a “democratising effect” on finance. On the one hand it would enable entrepreneurs excluded from traditional sources of finance to attract funding. And, on the other, it would provide new opportunities for people with even relatively modest amounts of money to invest. For example, private investors looking for higher returns than those available with high street banks have been attracted to various lending platforms – also known as peer-to-peer (P2P) platforms.

Our work has reviewed the available research on crowdfunding to examine whether this relatively recent method of financing new and small businesses lives up to the lofty claims of democratising investment in the 21st century.

Donation-based crowdfunding platforms have certainly made it possible for lots of not-for-profit projects (such as charity-based ventures and social enterprises) to raise finance from philanthropic investors who are not seeking a financial return.

The types of businesses raising finance from P2P platforms (where lenders provide loans with interest), and equity-based crowdfunding platforms (where entrepreneurs sell a stake to investors), are certainly more diverse compared to those financed by banks, “business angels” and venture capital funds.

But in other respects, we discovered this democratisation idea can be challenged.

Bias, geography, skills and risk


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Small Data approaches provide nuance and context to health datasets

 

Small Data approaches provide nuance and context to health datasets

The use of Big Data (large, aggregated datasets) to inform the provision of health care leaves out context and details. Shutterstock

Courtesy of Debora Irene Christine, United Nations University et Mamello Thinyane, United Nations University

The trend of tracking health and well-being using digital technologies has permeated mainstream culture. The real-time monitoring capabilities, interactive decision-support algorithms and diagnostic testing features of digital health devices have drawn the interest of users everywhere, including the Global South.

Applying tools such as predictive analytics and prescriptive analytics has benefited businesses such as insurance companies and health-care providers. It has also led to unequal treatment and discrimination of individuals as consumers and recipients of health-care services, and to ill-advised decision making by clinicians and policy makers.

Our research, which was undertaken with participants largely from North America, has investigated attitudes towards the sharing of personal health data with various stakeholders within the wider health sector. It also explores alternative data approaches which could mitigate marginalization and exclusion.

Big data and discrimination

Personal health data collected through digital devices like glucose monitors and personal health trackers (such as Fitbit) and mobile devices are naturally small data. When this data become aggregated into big data sets, they also become highly valuable and profitable as knowledge resources.

Discrimination based on health data collected from self-tracking apps is rampant. Already, health information is being combined with other types of personal data to make population-wide inferences and correlations that carry value on the market of patient health data.

How does this work? Imagine yours — and other people’s — personal health data pooled together by data brokers and processed using machine learning algorithms to identify patterns and conditions that affect the overall health across groups. These patterns are then used to predict health risks and health-care costs. Combined with the data of purchasing habits, personal health data are used by insurance companies to offer customers personalized, data-driven, dynamic prices. Processed using predictive analytics, the same data could be used as the basis for health prediction discrimination.

These unfair practices…
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The Senate filibuster explained – and why it should be allowed to die

 

The Senate filibuster explained – and why it should be allowed to die

The filibuster is like a stoplight that’s always red. AP Photo/J. Scott Applewhite

Courtesy of Daniel Wirls, University of California, Santa Cruz

Sen. Elizabeth Warren is the latest Democrat to argue an arcane Senate rule governing debate stands in the way of passing a progressive agenda, such as meaningful gun control.

The procedure, known as the filibuster, allows a 41-vote minority in the Senate to block legislation. Its power has been steadily eroding, however, as both Democratic and Republican lawmakers create procedures to get around the roadblock to pass everything from the Affordable Care Act to President Donald Trump’s Supreme Court nominees.

Should the Senate move even farther toward being a legislative body characterized by majority rule rather than minority obstruction?

Many Democrats, including me, might resist anything that helps Trump and his GOP Senate majority pass their agenda. Yet as a scholar of the Senate and advocate of responsible government, I believe the end of the 60-vote Senate would nonetheless be a good thing for the country – and conform to the founders’ intentions.

The filibuster explained

The filibuster, which comes from the Dutch word for pirate, is embodied in Senate Rule XXII. It says cloture – a motion to end debate on a bill – requires a supermajority of at least 60 votes on most matters under consideration.

Although some lawmakers argue the filibuster is what makes the Senate unique, a supermajority threshold is not what defines the legislative chamber.

As political scientists and historians have noted over and over again, supermajority cloture is not part of – and cannot be derived from – the Constitution or any original understanding of the Senate. Elements such as equal representation by the states, six-year terms and a higher age requirement are what distinguish the Senate’s style of deliberation and decision-making from the House.

In fact, although it may seem like the 60-vote filibuster has been with us forever, it’s actually only been around since 1917.

Moreover, the protection of the minority, often cited as a justification…
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How a person vapes, not just what a person vapes, could also play a big role in vaping harm

 

How a person vapes, not just what a person vapes, could also play a big role in vaping harm

A smoking machine in the author’s lab. Smoking by a machine is not the same as smoking by a person, the author and others have found. Katie DiFrancesco, CC BY-SA

Courtesy of Risa Robinson, Rochester Institute of Technology

In the wake of six deaths and 380 cases of confirmed and probable lung disease across the U.S., the Trump administration has called for banning most flavored e-cigarettes because of their huge appeal to young people.

The Centers for Disease Control and Prevention is looking closely at the different flavored nicotine juices and other substances users may be vaping in e-cigarettes to determine how the aerosol might be affecting users’ lungs.

On Sept. 12, 2019, the CDC lowered the number of confirmed and probable cases from more than 400 to 380. The number was lower, the agency said, because it is no longer reporting “possible cases.”

The mystery and concern remain. And, many smokers who use these devices to quit are concerned that a valuable tool may be taken away from them.

There’s much more that researchers need to know. These devices have a short history. As an engineer who studies how people use tobacco products, I believe that users’ behavior is key to understanding the positive and negative health effects resulting from e-cigarettes. After all, their intent was to help people stop smoking, the number one cause of preventable death in the U.S.

The way users puff, how long they puff and what they puff all play a role. We do not yet know how this behavior affects how much of each substance vapers consume over the course of their daily lives, but we have reason to believe it is significant.

The failed promise of alternative nicotine products

Tens of thousands of people who smoked low-tar cigarettes still developed lung cancer. didesign021/Shutterstock.com

Many are skeptical that e-cigarettes will reduce death rates related to smoking. Historically safer cigarettes…
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Stocks Soar Near Record Highs Despite Bond Bloodbath, Momo Meltdown

Courtesy of ZeroHedge

Stocks Soar Near Record Highs Despite Bond Bloodbath, Momo Meltdown

Quite a week…

The biggest quant quake since 2009 (and 2002)

Source: Bloomberg

as Momentum collapsed…

Source: Bloomberg

The momo massacre went global…

And factor dispersion collapsed…

h/t Michael Krause

And the antithesis of the momo massacre, value had its best week on record…

Source: Bloomberg

And relative to one another, it was a bloodbath…

Source: Bloomberg

And linked to this destruction, 30Y yields (amid record issuance) soared a stunning 33bps this week – second biggest yield spike since 2009…

Source: Bloomberg

But apart from that – global stocks rallied.

China ended higher…

Source: Bloomberg

Europe soared…

Source: Bloomberg

And US equities surged led by Trannies and Small Caps, each of which was panic-bid at every day's open. The Dow is up 8 days in a row. Nasdaq underperformed on the week…

That is the best week for Small Caps since Dec 2016 (and best for Trannies since Dec 2017)

Very narrow range in Dow futs in the day session (having tried and failed to break to new highs numerous times)…

The driver of the Trannies/Small Caps surge was


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Bernie Sanders Says in Last Night’s Debate that Richest 3 Americans Own More Wealth than Bottom 160 Million Americans. It’s Actually Worse than That.

Courtesy of Pam Martens

Senator Bernie Sanders

Senator Bernie Sanders

During last evening’s Democratic debate, Senator Bernie Sanders said this: “You’ve got three people in America owning more wealth than the bottom half of this country.”

According to Politifact, Sanders is basing this claim on a 2017 study done by the Institute for Policy Studies which put the richest three Americans’ wealth as follows (based on the Forbes list of billionaires at that time): Bill Gates of Microsoft with $89 billion; Jeff Bezos of Amazon with $81.5 billion; and Warren Buffett of Berkshire Hathaway with $78 billion — for a total of $248.5 billion. That wealth figure contrasts with the $245 billion owned by the bottom 50 percent of Americans according to the 2016 Survey of Consumer Finances conducted by the Federal Reserve. (The Fed’s survey is conducted every three years and the 2019 study has not yet been released.)

But according to the real time Forbes’ billionaire listing as of this morning, Bill Gates’ wealth has climbed from $89 billion to $105.4 billion, an increase of 18.4 percent. Jeff Bezos’ wealth has climbed from $81.5 billion to $114.6 billion – an increase of $33.1 billion or 28.8 percent. Buffett has not done as well as his fellow billionaires, growing his wealth from $78 billion to $83.4 billion, an increase of 6.9 percent.

The new tally for the three billionaires is $303.4 billion or a whopping $58.4 billion more than the bottom 160 million Americans, which includes one in every four children who live below the Federal poverty level.

But it only takes adding two more billionaires to make the picture even more oligarchic. Those additional two rank number 4 and 5 on Forbes’ billionaire list this morning: Mark Zuckerberg of Facebook with $69.6 billion; and Larry Ellison, co-founder of Oracle, with a net worth of $65.8 billion. The top five billionaires currently have a net worth of $438.8 billion or $193.80 billion more than the bottom 160 million Americans.

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Recessions can be willed into existence with the power of negative thought

 

Recessions can be willed into existence with the power of negative thought

Courtesy of 

Irrational Exuberance by Professor Robert J. Shiller is on my top ten book list for investors. It’s one of the most powerful explainers for how emotion drives investment decisions ever written. Shiller shared the Nobel Prize for economics based on the body of work he’s assembled based on this topic.

His new one comes out in three weeks. It’s called Narrative Economics, and will be the fall’s must-read along with the Greg Zuckerman tome about James Simons (The Man Who Solved the Market). I want you to add them both to your Amazon queue.

Also, make sure you go read Shiller’s new piece at New York Times now about how too much worrying over recessions can literally cause one. People can go from spending 20 dollars to 18 dollars to 15 dollars to nothing from one week to the next. Why does this suddenly happen, en masse, across the country in a synchronized fashion? Sentiment.

The probability that a recession will come soon — or be severe when it does — depends in part on the state of ever-changing popular narratives about the economy. These are stories that provide a framework for piecing together the seemingly random bits of information that one picks up from friends, the news or social media.

For consumers these narratives affect decisions on whether to spend or save, whether to take a demanding or an easy job, whether to take a risk or stick with something safer. For businesspeople the prevailing narratives affect deliberations on whether to hire more help or lay off employees, whether to expand or retrench or even start a new enterprise.

What People Say About the Economy Can Set Off a Recession (NYT)

Also, thanks to RIABiz and Graham Thomas for this awesome writeup about the dueling opinions from Peter Mallouk and Joe Duran at our Wealth/Stack event this week. Two radically different visions for where the financial advice business is headed. I especially love Brooke’s dystopian description of my morning commute through Queens each morning LOL!

Peter Mallouk and Joe Duran described the RIA business like they were from two separate planets, spinning heads at WealthStack (RIABiz)





The Street Reacts To Kroger’s Q2 With Mixed Takeaways

Courtesy of Benzinga

The Street Reacts To Kroger's Q2 With Mixed Takeaways

Kroger Co (NYSE: KR) reported second-quarter results that came in better than expected. The earnings beat may have been overshadowed by management’s decision to remove its prior guidance of $400 million in incremental EBIT by fiscal 2021.

Q2 A Mix Of Positives And Negatives

Kroger’s headline numbers “looked fine” as identical store (ID) sales excluding fuel of 2.2% was the best seen since early 2016, Morgan Stanley analyst Simeon Gutman wrote in a note. Gross margins (ex-fuel) improved from down 40 basis points in the first quarter to down 30 basis points while EBIT margins (ex-fuel) contracted just 20 basis points versus a 55 basis point contraction in the first quarter.

Gutman said Kroger’s improving metrics comes at a time when industry-wide sales and peer comps both improved and management acknowledged it didn’t gain any market share in the quarter.

Similarly, UBS analyst Michael Lasser said Kroger’s report includes a combination of “puts and takes.” On the positive side, the company’s ID growth came from a combination of store renovations, private label, higher than expected inflation, and digital. These headwinds appear to have carried over into the third quarter.

On the other hand, the pharmacy business continues to see “intense” pressures and the segment’s gross margins likely fell by up to 200 basis points. Kroger’s headwinds in the pharmacy segment could continue through the end of the year.

Related Link: Kroger’s Q1 Draws Tepid Reaction From Analysts, Investors Pull Back

No Debating At Credit Suisse

Kroger reported its “most compelling” earnings print in a while as ID sales came in north of 2% for the first time since 2016, Credit Suisse analyst Judah Frommer wrote in a note. Other key takeaways include 31% growth in digital sales and online buying is available to 95% of Kroger households. Also, private label sales rose 3.1% which is a record second quarter high.

“Continued confidence in robust free cash flow generation and a return to consistent share repurchase activity could lay the groundwork for improved own-ability of KR stock at peer-low valuation,” Frommer wrote in a note.

2020 And 2021 Outlook

Kroger kept its 2020 EPS guidance range unchanged at $2.15 to $2.25, Bank


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Zero Hedge

Yuan Extends Losses After China Macro Data Disappoints

Courtesy of ZeroHedge View original post here.

China's yuan extended its early losses, testing down to the fix after headline economic data disappointed across the board.

  • Industrial Production rose just 5.6% YTD YoY (below the +5.7% exp and down from +5.8% prior)

  • Retail Sales rose just 7.5% YoY (below the +7.9% exp and down from +7.6% prior)

  • Fixed Asset Investments rose just 5.5% YTD YoY (below the +5.7% exp and down from +5.7% prior)

  • Property Investment rose just 10.5% YTD YoY (down from +1...



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Phil's Favorites

Black Hole Investing

 

Black Hole Investing

Courtesy of John Mauldin, Thoughts from the Frontline 

Scientists say the rules change in a cosmic “black hole” at what astrophysicists call the event horizon. How do they know that? Not by observation, since what happens in there is, by definition, un-seeable. They infer it from the surroundings, which say that the mathematics of the universe as we understand them change at the event horizon.

Or maybe not. One theory says we are all inside a black hole right now. That could possibly explain a few things about central bank policy. ...



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The Technical Traders

Crude Oil Setting Up For A Downside Price Rotation

Courtesy of Technical Traders

Crude Oil has been trading in a fairly narrow range since mid-August – between $52 and $57 ppb.  Our Adaptive Dynamic Learning (ADL) predictive modeling system suggested the downside price move in late July/early August was expected and the current support aligns very well with our ADL predictions of higher price rotation throughout most of September/October.  Please take a minute to review the original research post below :

July 10, 2019: ...



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Insider Scoop

The Street Reacts To Kroger's Q2 With Mixed Takeaways

Courtesy of Benzinga

Kroger Co (NYSE: KR) reported second-quarter results that came in better than expected. The earnings beat may have been overshadowed by management's decision to remove its prior guidance of $400 million in incremental EBIT by fiscal 2021.

Q2 A Mix Of Positives And Negativ...

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Chart School

Dow to 38,000 by 2022

Courtesy of Read the Ticker

President Trump said the Dow would be 10,000 points higher if it was not for the FED. In truth if the Dow breaks to new all time highs the next stop is 38,000 and he may be proven correct. Is there an election on? 

Of course who knows? But lets continue. 

The fundamentals behind this may be:

  • A good deal with China.
  • The FED turning on easy money with further rate cuts (very strange with a market near all time highs). FOMC Sept 17th well tell us more.
  • The above turbo charging stock buy backs.
  • Off shore money running out of foreign equity markets in to US markets (see note1).

Note1: Of course this has happened before, one particular time was just before O...



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Kimble Charting Solutions

Bond Yields Due For Rally After Declining More Than 1987 Stock Crash

Courtesy of Chris Kimble

U.S. Treasury Bond Yields – 2, 5, 10, 30 Year Durations

The past year has seen treasury bond yields decline sharply, yet in an orderly fashion.

This has spurred recession concerns for much of 2019. Needless to say, it’s a confusing time for investors.

In today’s chart of the day, we look at a longer-term view of the 2, 5, 10, and 30-year treasury bond yields.

Short to long term bond yields are all testing 7 to 10-year support levels as momentum is at the lowest levels in a decade.

A yield rally is likely due across the board after a recent decline that was bigger than the stock crash in 1987!

If yields fail to ral...



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Lee's Free Thinking

Nonfarm Payrolls Not Seasonally Adjusted Tell the Real Story - Unspinning Wall Street™

Courtesy of Lee Adler

Not seasonally adjusted nonfarm payrolls, that is, the actual numbers, give us a truer picture of the jobs market than the seasonally adjusted garbage that Wall Street spews.

Friday’s seasonally adjusted nonfarm payrolls jobs headline numbers disappointed investors with slower than expected growth. But was it really that bad?

Here’s How The Street Spun It – Wall Street Journal Modest August Job Growth Shows Economy Expanding, but Slowly

Employers added 130,000 nonfarm jobs, jobless rate held steady at 3.7%

U.S. employment grew only modestly in August, suggesting that a global economic slowdown isn’t driving the U.S. into recession but has dente...



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Digital Currencies

China Crypto Miners Wiped Out By Flood; Bitcoin Hash Rate Hits ATHs

Courtesy of ZeroHedge View original post here.

Last week, a devastating rainstorm in China's Sichuan province triggered mudslides, forcing local hydropower plants and cryptocurrency miners to halt operations, reported CoinDesk.

Torrential rains flooded some parts of Sichuan's mountainous Aba prefecture last Monday, with mudslides seen across 17 counties in the area, according to local government posts on Weibo. 

One of the worst-hit areas was Wenchuan county, ...



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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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