December 12 Post

Hi Again,

 Patience! Patience! That matters a lot in investing. Years ago, when Twitter was going down for many months or years we kept Twitter on our portfolio and it paid off handsomely. For the past year or so, Apple was dead in the water. On 10/4/21, Apple was at $139 but it ended at $175 on 12/8/21. 21% gain in 55 days! Once again Apple stated that in a couple of years they will produce an electric car. Years ago Elan Musk stated that Tesla engineers go to Apple to retire. When Musk was having financial problems, Musk made a call to Tim Cooks (CEO, Apple) to see if they could do a joint venture but Apple did not respond. My Apple call option (strike price $200, expiry date January 2023) has a 150% gain already. Apple in our portfolio has a gain of 613% (up to 11/30/21).

Over the past year or so I have been noticing that when Boeing goes down to about $200, it bounces right back. On 1/25/21, Boeing was at $194 and intuitively I felt that in a few months the stock could easily go up to $250, giving it a 25% gain. I got greedy and instead of buying the stock, I bought out of the money call options. On 3/8/21, Boeing went up to $269!  A 28% gain in just 42 days! Unfortunately my options were so out of the money, I did not gain anything. Boeing options are so expensive that I did not have a choice but buy way out of the money calls. I should have got in to the stocks and not in to options. 2020 was a very good year for options while 2021 was a terrible year for option trading. However those who want to create a small gain or “create your own dividends”, writing covered call options (with the stocks you own) is a good strategy in this market. On 12/8/21, Boeing is at $211. If you write a covered call options with a strike price of $215 with an expiry date of 2/18/22, the premium you will collect is $13. By 2/18/21, if Boeing does not go over $215, you will keep all your Boeing stocks and pocket the $13 per share you collected on premiums- That is a cool 6% in about 2 months. On the other hand, let us assume Boeing goes way over $215 prior to 2/18/22 and the person who bought your options end exercising the options. Then you still keep the initial premiums as well as sell Boeing for $215 on 2/18/22(which you bought for $211 on 12/8/21). In total, a 8% gain in about 2 months. With Boeing this is not much of a risky thing to do as it is expected to reach its old time high of $400 or so ($440 in March 2019) in a couple of years.  

The Federal Reserve Bank has been sending warnings shots that they intend to increase interest rates which will be bad for all markets but all markets keep ignoring the Feds. Rick Santoli the CNBC bond expert who report from the Chicago Mercantile Exchange recently joked that the relationship between the Federal Reserve and the Market is like a relationship between a parent (the Feds) and a child (markets) and Rick stated, “When the child does not get anything, the child puts up a temper tantrum and when you tell the child something, the child remember as if you promised that to the child”. This time around the Feds stated that inflation is here to stay and that means we could have high interest rates in the future. Inflation can easily lead to hyperinflation. It is difficult to keep inflation under control. Remember the Nixon era to the Reagan era? Nixon, Ford, Carter, Reagan all tried on the fiscal side but nothing worked. It was Fed Chair Volker in the 1980s got inflation under control by raising interest rates. In 1981, the average interest rate was over 16%. Nixon issued Executive Order 11615 (pursuant to the Economic Stabilization Act of 1970), imposing a 90-day freeze on wages and prices in order to counter inflation. This was the first time the U.S. government had enacted wage and price controls since World War II. When the Federal Reserve wants to expand economic activity, they lower interest rates and the sole reason why they increase interest rates is to “drain the swamp” and take away the “punch bowl” and prevent overheating in the economy. The problems we experience exist in every single country in the world.  Supply chains issues stemmed from the covid crisis. Due to covid, all central banks printed money to stop a depression. Assisting the middle class and the poor who are close to being destitute is not causing inflation. Even Trump finally agreed that 99% of his excessive tax cuts went to corporate buyback of stocks. According to Barron’s 65% of investors and traders are currently buying everything on margin. If we have a 30% to 60% decline in the market, these people who bought on margin will get destroyed. Rising rates will boost the US dollar and create a huge cash inflow from other countries as Europe and Japan have negative rates. Some are short selling bond funds; that is a very smart thing to do. When Bernanke raised sates, all Central Bank Governors were very upset as they could not control fund outflows. For the past few years we have been seeing gold and bitcoins rising sharply as most people lost confidence in the Feds. If rates get normalized, most people who made money in bitcoins and gold, could trade those profits for 100% safe treasuries. A few weeks ago Ted Cruz and other Republicans wanted to force the government to default on debt payments. I was hoping that they would succeed. Then the Republican donors asked them to stop that nonsense. Most of them are the biggest bond holders and after a default the government has no choice but take care of the poor and not give more excessive tax cuts to the 65 US billionaires (who made over a trillion in 2020 and paid next to nothing in taxes)  and multi trillion dollar companies so they can use tax cuts to buy back stocks like Apple that spends over $100 billion per year of tax cuts to buy back stocks each year.  I do not know when but over the next couple of years we will see fireworks in the market as Feds start raising interest rates. In the 1980s Martin Zweig coined the term “Don’t fight the Feds”. Most investors and traders are “fighting the Feds” with their wishful thinking. That means we will have many opportunities to make money in the market by short selling or buying puts on index options.

Happy Holidays!

Fernando

Nov 7 Post

Hi Again,

Did you notice our performance on Tesla? It was down for a long time and even went down to $600 but patience gets rewarded. From 9/30/21 to 10/31/21, it went from $775 to $1128-total gain for Tesla in 8 months- 93%!

 Everything is in a bubble! Have you seen the TV show, “pawn stars”? They were saying that they do not want to buy old video games as they are in a bubble. A pair of shoes manufactured in the 1980s was sold for 1 million. Prior to 2017, most people stated that real estate will never go down and that led to the mortgage crisis. I have been saying that we are heading for a worse situation. Over the past few years, big companies with “printed” money buying houses that they can find assuming that it will be all profitable in the future. I knew it was a bad idea. Greedy landlords were increasing rents and doubling the homeless population. As I have been predicting, we can now see the “cracks on the dam” but we are not even close to the “dam blow up”. Zillow started as a website bringing buyers and sellers, renters and landlords and then they started buying houses and building up big inventories. On 11/2/21, they announced that they no longer will buy houses and add to their inventory as the market prices of their houses are below the purchased prices! This is just the beginning! Market analysts who were praising Zillow for years are now saying that it is a terrible business! I am sorry I did not buy some puts to short the stock. On 11/2/21 alone Zillow dropped by 20%. The worst is yet to come! 2007/2008 will seem like a picnic! It was only last month that I said that in the future, most people will be upside down on their mortgages as it was after 2007/2008. This time around, it is different- Prior to 2007, people with no assets or income were allowed to buy but this time it is hedge funds and private equity (in the US and overseas) have been buying most of the houses expecting to make money by assuming housing prices will rise to the sky. This time around the Federal Reserve and the government should allow these big funds to fail and make housing affordable to most people.

 Bubbles! Bubbles! Investors become myopic during bubbles. They believe the universe of attractive investment opportunities is small and growth can only be found in a few selected sectors. They seem enamored with vacations in outer space and electric vehicles, yet ignore the dire need for improving US logistical and electrical infrastructure.(Barron’s/Market View,   10/29/21)

 History keeps repeating itself as people do not learn from history. We have so much in common with the 1920. Barron’s had a nice article on the 1920s. There was no compassion for the poor and the struggling middle class. During the Great Depression, when a child stole a loaf of bread, that child was sent to a dangerous adult prison. One of my former older friends who grew up in Nazi occupied Holland used to steal food from the Nazis to stay alive.

 Per Barron’s (10/18/21), Annualized growth in China (PRC) GDP for 3rd Qtr, 2021: 4.9%. For decades if the PRC had a growth rate below 8%, it was considered alarming!

 Per Barron’s (10/8/21). The total amount of debt tied to China’s (PRC’s) property market: $5 Trillion !! China (PRC) used that money to create homelessness around the world and now the Communist Party is concerned about what that is doing in China.

Now for Bitcoins! China had become a key player in this new financial ecosystem, and Beijing’s actions could be the leading edge of a broader regulatory crackdown on cryptocurrencies and crypto assets by regulators around the world. China had earlier banned initial coin offerings, the cryptocurrency equivalent of initial public offerings of stock by companies. It then took steps to limit Chinese financial institutions’ dealings with cryptocurrencies and crypto assets. The latest move is much broader. All domestic cryptocurrency transactions are now prohibited. In principle, such transactions can be conducted without the government’s direct knowledge. But few Chinese citizens or financial institutions are likely to risk the government’s wrath. Beijing’s actions illustrate how national governments and central banks are becoming increasingly fearful of cryptocurrencies destabilizing their financial systems and other negative consequences. They have good reason to be worried. Bitcoin, the original cryptocurrency, once fueled illicit transactions on the dark web and now facilitates payoffs for ransomware attacks. It has become apparent, meanwhile, that Bitcoin doesn’t work well as a medium of exchange for everyday transactions. Its value is unstable, and the Bitcoin network cannot process a large volume of transactions quickly and cheaply. The prospect of households channeling their savings into crypto assets, leaving them vulnerable to a bursting of the speculative bubble, is worrying to governments. China’s government clearly didn’t want any part of this, especially since it is already facing pushback for trying to cool off the speculative bubble in housing markets, which it once encouraged. Yet another concern was that cryptocurrencies and stablecoins could be used to evade restrictions on cross-border financial flows. Such controls have been eased in recent years. but the government worries that unfettered flows would make it harder to manage the renminbi’s exchange rate. In 2015-16, when China was trying to rein in massive capital outflows and stanch a steep depreciation of the currency, demand for Bitcoin from within China spiked as people used it to take money out of the country and evade the government’s controls. Beijing now sees cryptocurrencies as conduits for evasion of capital controls. The environmental impacts, in terms of energy consumption and computer detritus, have been enormous. With the country in the midst of a power crunch as it tries to wean itself off dependence on nonrenewable energy, Bitcoin mining clearly wasn’t going to be tolerated (Eswar Prasad, Barrons/China Fears, 10/15/21)

 Is our debt level too high? During Trump years we were told that deficits do not matter and burdening future generations to give tax cuts to the wealthy and immensely big companies was not a problem. Last stimulus check went to “low income” families earning less than $50,000 but 85% of the population received it. When Trump gave a huge tax cut for companies, he stated that it will help them hire more employees and make it better for employees. Later Trump agreed that 99% of the corporate tax cut went to buy back stocks. Why? Company CEO pay packages are tied to stock performance so some CEOs earn more than $100 million per year. Disney family was disgusted at the difference between the CEO pay and the pay package of an average employee.  Now we can see more and more strikes as wage earners are refusing to tolerate these conditions that have been getting worse since Reagan took over in the 1980s. When Trump was threatening to raise tariffs on imported items, he said that if companies move out of the US, the goods they sell in the US will be ‘taxed’ at a high rate as an incentive to produce most goods in the US. Trump is correct. Now 2 Democratic US Senators acting like Republicans say that they do not want the Middle Class or the poor to have a “sense of entitlement”; however it is okay for multi-Billion dollar companies that pay next to nothing in taxes and the 65 US billionaires and the very rich to have a “sense of entitlement” and pay next to nothing in taxes. As in the 1920s, the party will end one day. 65 Billionaires in the US earned more than a trillion dollars in 2020. People say that our debt level is too high and that there is no solution in sight. Is it? Even though this is oversimplified, consider this, assume the 65 US billionaires will earn a trillion per year for the next 25 years. If those 65 billionaires pay a  95% tax rate, the total US debt will be gone in 25 years! Just imagine 65 citizens paying off this “huge” debt of the US within 25 years! Instead of doing that if we honor the great Republican President Eisenhower and bring back those tax codes for individuals and corporations, the total US debt will be eliminated pretty soon. Economists have stated over and over again shown that cutting taxes do not decrease deficits as some would like us to believe. That is like me saying that if all you give me 50% of your assets, your assets will not go down.  Even “read my lips” Herbert Walker Bush increased taxes which led to the first budget surplus since WW2 during the Clinton years. Clinton did not have anything to do with it. For HW Bush, country first but George W, it was all about getting a 2nd term as analysts say, ”George W did not see tax cut he did not like”. Compassion is a dirty word for some politicians. Some political party people believe that compassion is for socialists and we have to listen to Reagan who said that “Greed is good”. Just like the 1920s!  Read the article, “How the roaring ‘20s crashed and burned” in Barron’s (10/25/21). When everything crashes, make money by short selling the market!

Have a great month and a Happy Thanksgiving!

Fernando

October 11 Post

Hi again all,

Historically September is the worst month for stocks and we have had some bad crashes in October (1929 and 1987 for example). From 9/1/21 open to 9/30/21 close, S&P500 lost 4.88% but during the same time our portfolio gained 13.45%. On 9/20/21, the Dow fell 800 points; and at that time I sold my S&P500 (SPY) puts with a December 2021 expiry date and bought some that expire in February 2022. It is always good to have some puts as a hedge.

In the past I discussed how the corrupt government of El Salvador, going against the advice (warnings) of the World Bank and the IMF and was the first country to make Bitcoin legal tender. “May ring their bells now, before long they will be wringing their hands” (Sir Robert Walpole,1887). In El Salvador, 75% of the people do not even have credit cards. There were massive rallies in the country where people set fire to Bitcoin ATM’s. China continued their crackdown on bitcoins and crypto currencies and threatened legal action against those who against their policies. We should do the same!

Current real estate situation and markets remind me of 2006/2007. Market is at an all-time high but everyone is getting in to more and more debt for that privilege. As it has happened many times in the past, this will not end well and for decades millions will be end upside down on their mortgages.

Chinese property giant Evergrande is on the brink of collapse, and analysts warn the potential fallout could have far-reaching implications that spill outside China’s borders.On the heels of Evergrande’s debt crisis, there are increasing signs of stress in China’s property market after one developer failed to make a bond payment on Tuesday. “Evergrande’s collapse would be the biggest test that China’s financial system has faced in years,” says Mark Williams, chief Asia economist at Capital Economics. After expanding rapidly for years and snapping up assets as China’s economy boomed, Evergrande is now snowed under a crushing debt of $300 billion. (CNBC, 10/5/21). Chinese luxury real estate developer Fantasia Holdings said it failed to make a $206 million U.S. dollar bond payment due Monday, sparking fears that debt problems among China’s property development companies spans far beyond China Evergrande. Shenzhen-based Fantasia issued a $500 million senior bond at 7.375% in 2016, but did not repay the outstanding principle when it matured, it said in a Monday exchange filing. Fantasia (ticker: 1777.Hong Kong) invests chiefly in luxury real estate developments in metropolitan areas. Just two weeks earlier, Chairman Pan Jun said in a statement there was no delay in repaying offshore security notes, and that the company’s operating performance was “good with sufficient working capital and no liquidity issue.” (Barron’s, 10/8/21) This column argues that the footprint of China's real estate sector has become so large – with an impact of real estate production and property services on GDP of 29% a few years ago it was around 10%)  – that absorbing a significant housing slowdown would significantly impact overall growth, even absent a financial crisis (Voxeu, 9/21/21)

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning” (Winston Churchill). The whole globe will be impacted but it will take time.

When the Chinese government announced that they will not bail out these real estate firms, many on Wall Street stated that this is real capitalism as they believe that there is nothing as “too big to fail”. China is very good at controlling so it might not work for us. Instead of saving these super rich who were exploiting wage earners, the Chinese government promised to help wage earners. As they stated, they do not want home ownership, education only limited to the super rich as it is done in the West. The Chinese government is trying to boost the middle class. The economic growth was the greatest when our middle class did very well- soon after World War 2 with the GI Bill and other veteran benefits.

Most people think free enterprise or capitalism is a “free for all” for the rich and the powerful.  That is not true. Adam Smith was an 18th-century Scottish economist, philosopher, and author who is considered the father of modern economics. Smith argued against mercantilism and was a major proponent of laissez-faire economic policies. In his first book, "The Theory of Moral Sentiments," Smith proposed the idea of an invisible hand—the tendency of free markets to regulate themselves by means of competition, supply and demand, and self-interest. (Investopedia).

When I was in grad school, the Chairman on the Economics Department stated that in Adam Smith’s last book was on the importance of government intervention in the economy or else the richest few would destroy most middle income and lower income people. He came to that conclusion after studying the public transportation system in UK at that time.

History repeats itself when we do not learn from history. We have so much in common with the 1920s. We know how it all ended. After the 1929 The Emergency Banking Act of 1933 was a bill passed in the midst of the Great Depression that took steps to stabilize and restore confidence in the U.S. banking system. It came in the wake of a series of bank runs following the stock market crash of 1929.Over the past 30 years we have been dismantling most of those safeguards in the name of deregulation. This is very dangerous. There are laws against conflict of interest governing people in Congress or in the administration so almost expected the same from people working for the Federal Reserve Bank. It should apply more to them than to those in Congress or Administration. Let us assume a few people who sit on the Federal Reserve Board decided to short sell the stock market and bond market buying puts on the indices (SPY, DIA, QQQ etc.); and then they make a surprise announcement that with immediate effect they are going to increase the interest rate by 5% which would result in a 90% decline in the bond market and in the stock market. All those Federal Reserve officials would become billionaires overnight! What came to light last month was shocking to most people. They did not do anything illegal but that makes it worse. Not only they held stocks/bonds but they were  also were trading!

Two Federal Reserve officials said on Thursday they would sell their individual stock holdings by the end of the month to address the appearance of conflicts of interest. Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren issued statements saying they would invest the proceeds of those sales in diversified index funds and cash savings and would not trade in those accounts as long as they are serving in their roles. The announcements come after the officials faced scrutiny over trades they made last year, according to their financial disclosure forms. In the forms, first reported by the Wall Street Journal, Kaplan disclosed he held a total of 27 investments in individual stock, fund or alternative assets that were valued at over $1 million each. He also made sales or purchases of at least $1 million in 22 individual company shares or investment funds, the report noted. The transactions included Apple, Amazon and General Electric.(Reuters, 9/9/21). Eric Rosengren, the president of the Federal Reserve Bank of Boston, said he would step down this week for health reasons. Meanwhile, Robert Kaplan, the president of the Dallas Fed, said he would resign Oct. 8 to avoid becoming a "distraction" from the Fed's broader mission.(NPR, 9/27/21).

 No one knows when but one day we will have an immense crash so it is better to keep 25% to 50% of one’s portfolio in cash so we can benefit from such a crash. However good technicians expect the market will be bullish from the end of October to January.

Have a great October!

Fernando

September 6 Post

Hi Again,

We managed to gain 3.79% in August. Now we are in September which is the worst month (historically) for the market. For the longest time, all experts have been expecting at least a 10% correction but the market does not like to go down. The theory is that all the liquidity created by the central banks of the world is driving asset prices. We have so much in common with the 1920s and we know how that story ended. History tends to repeat itself. The US Federal Reserve went from “not thinking of interest rate hikes’ to “thinking about hikes” and even that did not scare the market. Per CNBC on 8/30/21, 65% of retail stock investors are buying on margin debt! When market start to go down in a big way, these people are going to be in big trouble and create an avalanche to the downside but no one has a timeline on that. Consider it a buying opportunity!!

Usually volatility in the bond market leads to volatility in the stock market but these is a time lag between the two. We already saw volatility in the bond market so we could see volatility in stocks over the next 6 months. Bond investors try to be ahead of the Feds so even if the Feds tighten a little, bond investors could run for the exit. Carter Braxton Worth, Market Technician believes that the market will be down by 12/31/21.

GE effected a 1-for-8 reverse stock split on July 30, 2021. The split adjusted shares began trading on August 2 above $100, the company announced. The reverse split multiplied the price of the stock investors own by 8, but also reduced the number of shares they owned, by dividing the number by 8. Our “scorecard” was adjusted accordingly.

What happened to GE? For decades, GE used to be the company most respected and admired by all other companies in the world. Former CEO of GE, Jack Welch was known as the pope of CEOs. After his departure, everything came crumbling down. The current CEO is expected to build back GE but a reverse stock split? Only companies who are afraid of getting delisted from the NYSE etc. go through a reverse stock split. No one thinks that GE is in danger of getting delisted but they seem to think that they can get more respect with a reverse stock split. How sad!

Larry Williams, is the author of 11 books, most on stocks and commodity trading. On 8/24/21, Larry stated the following:

·       Historically first week of September is bad for treasury bonds

·       At this time small speculators in the bond market are buying while the big commercial speculators are selling. Generally, small speculators are wrong. This is a bearish sign.

·       Over the next few months, bond prices will go down and the bond yield will go up and that is bad for the stock market. (Remember October 1987? A sharp movement in yields for 30-year U.S. Treasury bonds helped set the stage, with the yield jumping to 9.61% on Oct. 1, 1987, from 7.39% at the beginning of the year, according to the Federal Reserve)

Now for Bitcoins! What the Chinese government has been doing is not good for the Western World but it is good for China and most of its people. They have been tightening restrictions on bitcoins for a long time. Is there anyone who has not heard about “ransom ware” and the connection to Bitcoins? Now experts state that with all the bitcoins the criminals received from ransom ware , they have purchased sophisticated hacking equipment to do more damage in the future. Warren Buffet and Charles Munger spoke out publicly against Bitcoins and how it is helping criminals around the world. Wall Street money managers mocked Buffet and Munger as their combined age is close to 200, claiming that they have lost touch with the current world. Wisdom comes with age and Wall Street money managers are blinded by greed. On 4/12/21, Barron’s included a very good booklet on Bitcoins and Cryptos; and according to that report, 2.4% of the account holders own 95% of all Bitcoins! Millions of Americans (not to mention other nationals in other countries) have suffered due to Bitcoins enabling “ransom ware hacking”; and the worst is yet to come. In the future, directly or indirectly, almost all Americans will suffer due to Bitcoins. Setting pride a side, our authorities should take a lesson from China and tighten controls on Bitcoins. Many Bitcoin holders find that their accounts get completely “washed out” by hackers overnight! Anything not “hackable” today could be “hackable” tomorrow.  Let me repeat, per Barron’s (4/12/21), 2.4% of the account holders own 95% of all Bitcoins!

Have a great September! Historically the worst month for the market!!

Fernando

 

 

August 7 Post

Hi Again,

 We had a very small correction that lasted a couple of hours. The market is dead in the water. Hopefully we will have a big correction before December. Nothing much is happening now; it is the same old story. Historically, summer is a dull time for the market.

Over the past 9 months, crude prices have been rising and I have been warning that this is not sustainable. In October 2020, crude was at about $40 and recently, it rose to $75. Then many investors started buying the commodity and oil companies. I always felt that it was a mistake. Buy at $75 and sell at $100? Oil companies are not making long investments as more and more countries are moving away from fossil fuels. Also it was due to domestic production that prices crashed in the first place; which implies that when oil prices rise, domestic production will rise and keep a cap on prices. Value of deals in the US shale industry in 2021 Q2; $33 Billion- second highest ever! Imagine crude going up to $100; what will happen to domestic production? We have seen that movie before.

Carolyn Boroden is a top-notch technical analyst, who specializes in advanced Fibonacci strategy, in addition to a published author. As she’s been in this industry for over several decades now, she first became interested in Fibonacci in Chicago in 1986. After learning Fibonacci from Robert Miner, she ventured to open her own website. Carolyn is also known by her nickname, “Fibonacci Queen”. Carolyn has been accurate about past corrections on the S&P 500. This is what Carolyn stated on 7/21/21:

·       Since 1/1/21, average correction did not last for more than 3 days so we can expect the same for the next few months

·       On the S&P 500, if we can manage to stay above the 7/19/21 low (4233), then the market will maintain its bullish trend. Next goal: 4492

·       If the S&P 500 falls below 4023, then we could have a big correction.

·       If the market is bullish, it is also bullish for the big stocks such as Apple, Google/Alphabet, Facebook, Microsoft, Amazon etc. Apple alone is 6.1% of the S&P.

Carley Garner is an American commodity market strategist and futures and options broker and the author of "Higher Probability Commodity Trading" published by DT publishing an imprint of Wyatt-MacKenzie. She has also written four books published by FT Press, Currency Trading in the FOREX and Futures Markets, A Trader's First Book on Commodities (two editions), and Commodity Options. Commodity Options was named one of the "Top 10 Investing & Trading Books of 2009" by SFO Magazine. This is what Carly stated on 7/13/21:

·       December 2023 Oil Futures show that oil prices will go down in the future.

·       The stock market is close to a top.

·       Usually oil prices peak in July

·       With respect to oil, right now, big speculators are mostly bullish so that is bearish for the long term. Outcome should be like 2018.

·       If Crude falls below $80, it could go down to $60; and if it goes below $60, it could go down to $40.

As I have been expecting, Apple has been doing well lately.  It is better to bet on a solid company with solid balance sheets and growth than invest in companies with no earnings. Apple is the best with $190billion in cash and that has been the case for a very long time. On 10/31/20, Apple on our portfolio had a gain of 370% and as of 7/31/21, it has risen to 529.93%! On 7/14/21, Apple asked suppliers to increase production by 20% as they are expecting a boost in IPhone sales.

Gene Munster is Managing Partner & Co-Founder of Loup Ventures, a research-driven venture capital firm based in Minneapolis and New York investing in frontier tech companies. This is what Gene stated on 7/27/21 on the recent Apple earnings call:

·       Apple exceeded analyst expectations.

·       Expect Apple price to go over $200 in 2021/2022

·       Investors should be patient with Apple

·       Service industry (i.e. Healthcare) to generate $300B+ in revenue

·       Technically, “past resistance” is a “future floor” so most probably at least in the near term, Apple will not fall below $139.07 (high of 1/18/21).

There are several ways to make money off Apple. On 8/5/21, Apple closed at $147. Let us consider options that expire on 9/10/21 (in 36 days). Strike price $139 had a price of $1.40 so if you write a naked put option with the strike price $140 that expire on 9/10/21, you can collect close to 1% (that is 1% per month). Per Gene Munster, most probably, Apple will not fall below $140 in the short term so your put option will expire worthless so you will end up with 1% per contract “written” in your pocket. If Apple falls below $140 before 9/11/21, you will be obligated to buy 100 shares of Apple at $140 for each contract you “wrote/sold”.

Historically September and October are the worst months for the market. Professionals are buying hedges to get ready!

Have a great month!

Fernando

 

July 7 Post

HI Again,

We just reached the half-way mark for 2021; and the market had the best first half since 1998!! In February and March, our portfolio gained 29%. For months, all market analysts have been worried about what inflation would do to the market. As I stated in a previous newsletter, a technical analyst predicted that inflation will not be a threat and commodity prices such as lumber will peak. That turned out to be true. As Jim Cramer states, billionaires want the Federal Reserve to raise rates so there will be no wage inflation and then they can multiply their billions but the Federal Reserve is more concerned about the 80%+ who are wage earners with no or a few assets.

 XLE, the Energy ETF gained 44%. Per Josh Brown, when there is a significant gain over a short period of time, it is a red flag and most probably it is a rally in a bear market. Energy is good for trading and not for long term investing. As the price goes up, production too will go up. While many people assume Saudi Arabia is the world's largest oil producer, that's no longer the case. In 2017, the United States came out on top as the leading global producer of oil and other petroleum liquids. Overall, oil companies in the U.S. pumped out an average of 14.5 million barrels per day (BPD), according to the Energy Information Administration (EIA). That production level accounted for 15% of the world's total output that year, which was ahead of both Saudi Arabia (at 13%) and Russia (at 12%). (DiLailo, The Motley Fool, 8/28/19). In order to combat global warming, all economies are moving away from fossil oils. That is not good for this industry.

On 6/18/21, the technical analyst, Carter Wright, made the following comments on CNBC:

·       S&P 500 could decline by 7.8% in the near future.

·       XLF or the ETF for Financials could go down by another 18%

·       One should consider selling banks and financials.

Last month for the first time, a head of a state/country made Bitcoin legal tender. Who did that? President of El Salvador! The International Monetary Fund (IMF) made an immediate announcement that they were disappointed with El Salvador. This is the very reason why all developed countries should ban Bitcoins and cryptos. Biden administration just announced $4Billion in aid to countries such as El Salvador. Most foreign aid ends up in the bank accounts of corrupt politicians in those countries. Now they will end up in Bitcoins. As Bitcoins go up in value, ransomware hacking is increasing exponentially. During the past 4 weeks, China started cracking up on Bitcoins and Cryptos. We should do the same in the US. According to Barron’s 14% of Bircoin account holders control the price of Bitcoins. Recent JP Morgan survey shows that 49% of people consider Bitcoins and Cryptos to be “rat poison”.

Tom De Mark is the founder of De Mark Analytics; It can be applied to any time interval, from intra-day, to daily/weekly/monthly. It is said to be more than 70 - 90% accurate, whereas most technical analysis indicators are less than 50% accurate. On 6/11/21, Tom De Mark made the following observations

·       Bitcoin is close to a bottom as it has lost more than 50% from its previous high

·       In the future, Bitcoin can recover 50% of its previous losses.

·       Previously he accurately predicted that Bitcoin will peak around 4/13/21

·       Not yet (as of 6/11/21) at a bottom (with respect to Bitcoins)

·       Bitcoins will bottom prior to 7/5/21 so he asked people to be ready to buy

·       S&P 500 has run out of steam and will peak soon around 4335-maybe before 6/18/21 (That did not happen as it ended at 4352 on 7/2/21!)

It seems like (as of 7/5/21), Bit coin made a “double bottom” on 6/20/21 and 6/24/21. Double bottoms are very bullish but if this will hold or not is yet to be seen. Personally, I am not that bullish on Bitcoins in the short term.

All investors know that when insiders buy their own stock, it is a very bullish sign. Years ago, when banking stocks and all stocks were in a bear market, the CEO of JP Morgan, Jamie Dimon purchased millions of his own company stock and that put an end to the market slide. The opposite is also true. Recently, the well-known former CEO (and current Exec Chairman) of Disney, Bob Iger sold 50% of his shares in Disney (per CNBC)-  Iger, 70, disposed of 550,570 shares at an average price of $179.21 on June 1, according to a regulatory filing Thursday. The move cut the shares he owns directly by 50% to 555,865. (Nick Turner,Bloomberg,6/3/21)

To me, that is alarming. On 3/1/21, Disney topped at $201. Over the past 3 months, it made a triple top at around $177 to $179. These signs are not encouraging.

Last time Apple made a high was around 1/25/21 at $ 143. This is the mostly held stock with a market cap of $2.33 Trillion. Directly or indirectly through ETFs, most investors own Apple. It has been a great disappointment for a long time. For the past few months, analysts were waiting for Apple to go over $135 so that it could start another bull run. On 6/8/21, at $126, the 5 day moving average overtook the 13 day moving average and the 5-day has been above the 13-day since then so it is very bullish for Apple right now. How long will last? No one knows but I am confident that it will be over $200 by 1/1/2023. If you get to buy Apple below $100, that would be a great buying opportunity. If you get to buy Apple at $50 or below, that would be like buying a lottery ticket that is a sure thing! You can make a 1,000% to a 10,000% profit on Apple call options for sure! People are so afraid of market crashes but they provide us unique once in a lifetime opportunities.

 Have a great July!

Fernando

 

June 2021 Post

Hi Again

Are you tired of hearing about Bitcoins and crypto currencies! In 2014 a Bitcoin was at about $198, and on 4/2/21, it was around $54,000!! Last year, astrologer and market analyst Merriman predicted that in 2021, Bitcoin will find its crest at about 65,000. It has been fluctuating wildly for numerous reason. With each tweet, Elan Musk make it go up and down. China is doing the right thing by having more regulations on crypto currencies. In some Asian exchanges/countries, you can buy Bitcoins at a margin rate of 100 for a 1-as people do in the commodity markets. That is a recipe for a disaster. Carter Braxton Worth is an American financial analyst and stock market strategist. He is a seven-time member of institutional investor's All America Research Team. He was most recently voted #1 in the 2017 Institutional Investor vote, and has ranked in one of the top three positions in the past seven years. On 4/23/21, this what Carter stated on CNBC “Fast Money”

·       Studying Bitcoin history going back to 2011, most declines in Bitcoin were limited to 55% and he expected Bitcoin to bottom at that level.

·       Then on 5/17/21, he revised (as most technicians do); and he now expects Bitcoin to go down to 20,000 or a 90% decline from the previous crest.

In our portfolio, we have RIOT which mirrors Bitcoin in many ways. Recently I heard a money manager say on CNBC that the problem with Bitcoin substitutes is that there is no way to hedge against a crash so obviously he has not heard of RIOT. Initially on my personal account I bought call options on RIOT and made a 100% profit in 4 weeks. Then I sold my options and put 50% in to the RIOT stock and I also bought some long term put options on RIOT as a hedge against a big decline in price. 

 Last few weeks most investors have been dreading inflation. The Federal Reserve is not taking it seriously and they believe it is going to be transitory. However the bond market and the stock market refuses to believe the Feds. How do we look for signs of long term inflation? We have to look at the commodity markets. Carley Garner is a technician that study the commodity markets. She believes that commodity prices are peaking so the Feds could be correct. On 5/13/21, this what she had to say on CNBC:

·       Inflation fears are overblown

·       Lumber prices are close to a crest

·       Other commodity prices might follow lumber and crest soon

·       Copper rally is stalling so could start falling soon

·       Recently more money have been following the inflation trade and that too is a sign of a peak

After a long time, from 5/7/21 to 5/12/21, we had a decent correction. On 5/12/21, I heard many big money managers say that if the correction continued in 5/13, they are ready to do some buying but to me that is a sign of at least a near term bottom. For the past few months, Carolyn Boroden aka Fibanacci Queen was predicting that the S&P500  would crest around 4000 to 4100 (or SPY 400 to 410); and as she later stated, the market “blew through” those numbers. Then what happens? What used to be a resistance level (crest) become a support level (a floor or a trough). The decision to sell is harder than the decision to buy. On 5/12/21, I sold my SPY put options with a 50% profit. Going through option tables is fun for me. SPY options are more active than buying options on the Dow (DIA) or NASDAQ (QQQ). “Open interest” on most SPY options were less than 1,000 but surprisingly I found that on SPY options expiring November 2020, put options for strike price 195 was at 52,000! One might say that some were expecting the S&P500 to drop by 50% by November 2020. After the fall on 5/12/21, the open interest dropped to 12,000 so the people who liquidated the 40,000 contracts would have made a 50% to 100% in profits.

I have always said that if the dividend rate is too high (i.e. more than 4%), it is a red flag. AT&T (T) is a good example. The dividend rate on T was more than 7% for a while. Why was that? Due to its high debt level, most expected them to reduce the dividend payout. However a few weeks ago when they announced good earnings, all analysts stated that their dividend was safe and it was good to buy the stock. That was very short lived. On 5/17/21 they announced the sale of Time Warner. First the stock rallied as people expected T to lower their debt level and focus on their main business and keep the dividend safe but analysts going through their statement found that they were linking the dividend payout to earnings which implies that there would be a huge dividend cut in the future. AT&T has a reputation for being one of the worst run companies in the world. They admitted they made a mistake in purchasing Time Warner for $80B+ and then selling it for less than $50B. Most of their shareholders were orphans and retirees who were depending on the dividend. Wall Street was upset at the compensation level paid to current and former executives. They are trying to reinvent themselves but these are the very people who created this mess. The high dividend rate was a red flag after all!

The Wall Street adage “sell in May and go away” refers to a period between May and October when the market on average underperforms the prior six months

Have a great June!

Fernando

 

April 5 Post

Hello Again,

 The net gain for our portfolio for March 2021 came to 11.15% (scoreboard given) and the net gain for February 2021 was 14.32%.

 During March 2021, we purchased more of Tesla to bring down our average cost. Our goal is to make money in 2 to 3 years and be ready to have a paper loss till then. We bought 2 shares of Tesla on 2/26/21 at $675 and we purchased 10 shares at $563 on 3/8/21 bringing down our average cost to $581.67. Already we have a gain of 14.84% in one month or so. I expect Tesla to fall below $400 (or even $200) within the next 12 months and be over $1,000 within the next 2 years. Cathy Woods who has been accurate about her predictions for Tesla for a long time predicts that Tesla will be at $3,000 to $7,000 in 5 years. We added RIOT, Bitcoin substitute 2 months ago and now it is up 166%. On RIOT too, I will not be surprised to see a 66% decline over the next 12 months. As the dollar gains more credibility with rising interest rates and as bubbles get burst, Bitcoin could go down but that would be a buying opportunity. About 4 months ago, the market analyst and astrologer Merriman (who has been advising big Wall Street firms for 40+ years) stated that not to expect the market to allow people to make easy money in 2021 as it did in 2020. A few days ago, I heard the “market guru” Jim Cramer say the same and he was asking people to get out of options. Most people who trade in options do so with short term options. Whenever possible, I trade in options that expire in 2022 or better yet 2023.

 In 2020, NASDAQ was the leader and when it made new all-time highs, the Dow Jones (DJIA) and the S&P failed to do the same (per Merriman, “intermarket bearish divergence”) and now it is the reverse. Investors are switching to the “reopen trade”. It is impossible for that to happen without the old favorite “FANG’ (Facebook, Apple etc.) going down. Better opportunities are with the “reopen trades”. Why make 5% to 10% gain when you can make 50% to 100%+? On 3/12/21, Carter Worth, the technician stated that Tesla, Apple and Paypal account for 17% of the top NSADQ 100 and the top 7 is responsible for 50% of top NASDAQ 100 market cap.  However no one can predict what will happen in the future; as the famous Wall Street maxim goes, “ Just as you think you finally found the key to the market, the market changes its locks”.

 Many predicted that NASDAQ was bottoming and among them was the technician, Carter Worth, who stated the following on 3/4/21:

  NASDAQ broke the neckline to the downside

·  NASDAQ seems to be bottoming. (ETF QQQ up 5% since 3/4/21)

·  Google/Alphabet would be the best “bet” for a buy at this time. (Up 6% since 3/4/21). Travel is heating up and Google gets a lot of ad dollars from the travel industry. Latest round of stimulus checks should “add gas to the fire”. This is better than going with airlines with terrible balance sheets.

Have a Happy Easter/Spring!!

Fernando

March 1 Post

Hi There Again,

 In February 2021, our portfolio had a net gain of 14.32%. During the same period, the S&P 500 went up by 2%. Look at our scorecard, RIOT is up 100% in 26 days. It will go down and then buy more. This market keeps going up without a major correction. “Boy who cried wolf”. Remember? I guess I sound like that (“bubble is coming”) to most people. The only difference is that in that story the boy who cried lost his life but in this case, the people who ignore all the signs of a bubble might end up losing a lot of money. In fact, most prudent analysts have been saying that this is a bubble for a long time. According to history, bubbles end when people who believe in bubble stop believing that we are in the middle of a bubble. Even when we were going through bubbles in the past, there were many who would come up with arguments to show that we are not in bubble territory. I am not saying we should avoid markets during “bubble times”. If you are in the market, do it AYOR (at your own risk). There are many ways to do it and know that what you have in the market is at risk.  How much risk are you willing to tolerate? Are you young enough? In other words, if the market stay down for decades, what is the risk you are taking?

In February, we added items to our portfolio; TSLA (Tesla-Technology) and RIOT (a substitute for BITCOIN or crypto currency). For years, most people thought that Tesla stock craze was abnormal. Even Elan Musk stated that over and over again and then he did a wise thing, he increased the number of outstanding shares (when others were buying back their own stock). Brilliant move! In fact, Gamestop CFO was fired last week for not doing the same thing. Over the past month Gamestop got so much publicity for free and if they paid money for that publicity, it would have cost them hundreds of millions of dollars. Did the CEO or CFO say anything? No. Did the CFO take advantage of this craze to raise cash? No. Gamestop has about 90 million shares outstanding. On 2/26/21, the stock ended at $101 with a market cap of $7B. Prior to 1/12/21, for 2 years, it was below $15 and for the past 5 years (prior to 1/12/21), it was below $35. On 1/27/21, the stock price rose to $347! Then fell to $40 on 2/15/21. If the CFO was wise, he would have increased the outstanding shares from 9 million to about 100 million. Just to exploit the Robinhood idiots. Let us say that the market bought all that 100 million at even $100 per share, that is an increase of $10B to their cash situation. An analyst talking about another stock like this Quantumscape (QS),  stated that the company should have about a million new issues, get the cash, put all the cash in Bitcoins and stop all other operations and be a profitable company for decades to come! If this is not a bubble, we never had a bubble in history. The biggest bubble, “tulip bubble” of 1637 was just a minor correction for those people. I bet there were people who were thinking that a tulip bubble could go up to a trillion dollars. As for Tesla, the technology part is what is good about Tesla; and not the car unit. A few years ago, according to Consumer Reports, Tesla was the perfect car with a score of 100% and in 2020, it was among the 5 worst cars. The only person to predict this amazing rise in Tesla stock price was Cathy Woods who is well respected on Wall Street. Now she predicts that Tesla would go up to $7,000 in 5 years and then to $40,000. From the very beginning, as a student of economics, I have been opposed to cryptocurrencies. Just like Jamie Dimon, CEO of JP Morgan, now I think, “if you cannot beat them, join them”. If Cryptos become a substitute for the money supply, in many ways we are going to be in big trouble. A sharp decline in the world’s money supply will put the whole world in a big depression that we cannot get out of. Also I do not buy the argument that one day hackers will not be able to get in and “steal” all the cryptos. Heard about the Russian hack “solarwinds/microsoft”? Even after all these months, one of the world’s biggest techies, Microsoft is clueless about the total damage! However it is okay to put a little bit of money to exploit the Bitcoin craze. So far our SEC has not approved an ETF to trade Bitcoins or cryptos. However I find that RIOT blockchain does a good job of following the Bitcoin trend. Prior to 11/13/20, RIOT was below $4 for years. It reached $78 on 2/17/21 !! During the same time Bitcoin went from $14K to $48K-which was predicted by my market analyst astrologer Merriman about 4 months ago. Merriman’s “big crash predictions” are yet to happen but my research shows that the predictions he gives each week for the DJIA, S&P and NASDAQ for 2% to 4% corrections are 80% accurate. On 12/23/20 I bought call options on RIOT at $650 per contract and those had an expiry date of June 2021  On 1/7/21, I sold those at a 82% profit in just 15 days! Stupid me!! If I sold them on 2/17/21, I could have sold them at a 1,000% profit in about 60 days! However I did not get out of RIOT, I thought that the options were in a real bubble and overpriced so I bought the stock instead; which went up about 150% in 30 days. Expect RIOT and TSLA  to go down in the next 12 months and then we can buy more and decrease the average cost but never put more than 10% of the portfolio in to these 2 stocks.

I like listening to complex option traders but most of the time I think they take a riskier complex approach when a simpler, better path is available, At times I hear about good strategies and I share them with you. On 2/26/21, On CNBC Options Action, Tony Zhang said that he is going “Apple picking”. We started doing that in 2015 for our newsletter. Tony’s idea is a good one. Apple hit $120 last week and bounced back. Tony wants people to sell “naked put options” on Apple that expire 4/16/21 with a strike price of $120 for the current price of $600. What does this mean? This is like short selling but you have to get your brokers permission to do this. In fact to do a “covered put option”, you have to short sell Apple-which is very dangerous. This is no Gamestop. So going back to Tony’s idea, if you sell a naked put on Apple, as stated above, for each contract you sell, you get $600 in your account. 1 contract = 100 shares. Thereafter prior to 4/16/21, if Apple does not go below, $120, you do nothing and you get to keep your $600 (or multiples of it). Let us say that Apple falls below $120 before 4/17/21 and the buyer of the option exercises the option; then what happens? For each contract you sold, you have to buy 100 shares of Apple at $120. Since you have already received $6, your true net purchase price would be at $114. There are easier ways to make money off Apple options. I have been adding to my call options. Right now best buys are Apple and Boeing. As Jim Cramer says, “people ask can we get in to a stock that will perform like Disney in the future? Yes..it is called Boeing”. I have been going in and out of Boeing and Apple options for the past 12 months. I made some good money on Disney options too but I can kick myself for ignoring a friend who told me to get in to Disney when it was $100 a few weeks ago and now it is around $200. I  could have done great in options. Going back to Apple. Carter Worth, one of the best technicians on CNBC says that it is unlikely that Apple will go below its support at $120. Carolyn Boroden the Fibonacci Queen says that if Apple goes below $120, it is dangerous but she see Apple going up to $160 within the next 12 months or prior. For me, it is not a big deal, as I have some Apple put options with the strike price $90 (June 2021 expiry)  as a hedge. As Apple goes down, I buy more calls and puts so my puts will act as a hedge or a cushion. If Apple goes to $50 or so, that would be the deal of the century!! According to the above mentioned market technician, Carter Worth, the market cap of Apple, Amazon, Microsoft, Facebook etc. (the big techies) are so big and they are in so many ETF’s, the market cannot go up without those stocks going up so one of these days, those stocks will come up as a “come back trade”. However it could go lower or much lower too and  if that happens, it is okay too.

Have a great month!

 

Fernando

 

February 5 Post

Hi Again,

 GAMESTOP!! Whether on Wall Street or Main Street news, Gamestop was one of the number one stories last week! We have heard so much about Republicans and Democrats do not see eye to eye anymore but this situation got Ted Cruz and AOC/Sanders on the same page!

Ted Cruz retweeted AOC’s comments and added “I agree’. If you did not hear about Gamestop last week, you must have been living under a rock or something! Essentially millions of small time traders brought some of the most exclusive hedge funds like Melvin Capital close to insolvency! How did that happen? Have you heard of a “short squeeze”? When a heavily shorted stock moves up, the people who are short have to make a desperate effort to buy back the stocks they “shorted” (borrowed) or lose money in an unlimited manner. If you short sell a stock that has a market value of $100 thinking it is going down to 0 and then find that the underlying stock rose to $10,000, you most probably have to sell all your other assets to cover your “short sale”. New traders (sports gamblers etc. like Barstool people) that came in to the market  in 2020, through social media (mainly Reddit) focused on heavily shorted stocks and kept on buying them to “sky rocket” those prices.

 Gamestop has no intrinsic value and it was headed towards 0 as most people are buying games online. It was found that Gamestop was 130% “shorted”. How can that be? Big exclusive hedge funds get unfair deals from Wall Street. The focus of regulators and Wall Street should have been on how Gamestop got to be 130% shorted but their focus was on Robinhood traders who will end up bankrupting the last few traders who are not lucky enough to find suckers to buy their holding at a higher price than they bought them at. However it was evident from the volume that institutions and big computer driven programs were involved in it too.  100 million shares of Gamestop was traded in one day! This was not limited to Gaemstop; they were going after all the worthless stocks that are heavily shorted- Blackberry, AMC, Bed Bath and Beyond etc. If you look at the ticker tape after hours, you will see a lot of stocks that rose 25% to 100% in one day- Robinhood traders are at play!We have to keep this in perspective. Market cap of all US stocks come to about 33 Trillion and these speculative stocks only account for about 50 Billion. Many young people stated that they paid off their student loans and paid off their home loans with Gamestop profits. The old guard was asking the SEC to stop Robinhood traders and Reddit conversations. Robinhood stopped trading of these stocks and put severe limitations as they were running out of capital requirements.

 That is when the politicians got involved on the side of the small traders. Old Guard was saying that these Robinhood/Reddit people were putting pension money at risk by bringing down big hedge funds. For centuries, where pension money was invested was heavily regulated. They should not be in 130% shorted stocks and if they are in the market, they should be prepared for all possibilities. On 1/27/21, Social Capital CEO Chamath Palihapitiya who defends the small traders was saying that this “regime change” on Wall Street and defending the rights of the people who drove the big hedge funds (Melvin Capital, Bill Ackman et al) close to insolvency. CNBC estimated that they lost over $50 Billion. Some of the arguments made by Chamath: (1) Reddit did online what exclusive hedge fund managers have done for decades at exclusive close door dinners (2) Why allow these hedge funds to short 130%? (3) Some of these exclusive hedge funds have ridiculous margin requirements as putting $5B and buying $50B worth. This is why the retail investors kept away from the market for so long as they believed it was rigged in favor of the “big guys”. Is this the end of this story? No, not by a long short. To paraphrase Winston Churchill, “This is not the end. This is not even the beginning of the end. This is just the beginning of the end”. Due to Robinhood, we all got commission free trading. Now if the regulators drive away those traders, we will all pay a price so big hedge funds can keep the status quo. However Robinhood people needs to get more educated and experienced. They are even trying to drive up the price of silver (ETF: SLV) as it is very shorted. They are way too young to remember how Billionaire Hunt Brothers lost everything by trying to corner the silver market and ended up living with their sister. Instead of closing out contracts with cash settlements, a common procedure on the commodities market, the Hunts took delivery on silver. They then stockpiled this silver and used their large cash reserves to buy up even more futures. The billions in demand triggered the rise of silver to more than $50 per ounce. Nelson Bunker Hunt (February 22, 1926 – October 21, 2014) was an American oil company executive. He was a billionaire whose fortune collapsed after he and his brothers William Herbert and Lamar Hunt tried to corner the world market in silver but were prevented by government intervention

Without a shadow of a doubt, the stock market is in a bubble. With each passing day, it gets worse but the end is not in sight. It becomes more and more scary. It never ends well and no one knows what will happen after it bursts. In the worst case scenario, as it happened around 1930 in the US, it could take another 30 years to get back to “normal:. If you had money in the Japanese bubble in 1990, you had to wait 30 years or till 2021 to get your money back. This is my biggest concern. Chanos, the expert at shorting stocks say that, “This is the golden age of frothiness”. So true! Herb Greenberg who provides research for companies that short stocks had this to say on CNBC on 1/25/21:

·       We have never seen this much frothiness in our history

·       We have gone beyond trading to speculation to gambling.

·       Most people who drive stocks up do not understand anything about stocks or markets

·       SEC and regulators should intervene for the benefit of the general public.

·       During the shutdown most sports gamblers like “barstool” and “Robinhood naïve” investors are mostly responsible.

·       This will end badly but do not know when that will happens

On 1/11/21, “The Bond King” Gundlach I respect was on CNBC and this is what he had to say:

·       Inflation to exceed 3% in 2021.

·       When inflation goes over 3%, most experts will have to discard the investment strategies they have had for the past few decades.

·       Federal Reserve may find themselves in a position where they cannot help the economy/market. If inflation is not wiped out at the initial stages, it could grow in to hyperinflation and that is the worst for any economy or market. Remember 1965 to 1985?

·       Feds will allow the 10year treasury to go up to 1.5% before they intervene.

·       Feds will control the yield curve

·       Right now 2% of all employment is in Techs but 38% of market cap of all publicly traded stocks are techs

·       “Wealth Gap” between “wealth owners” and “wage owners” have gone “absurd” to “absurd square”

·       Assets should be moved from the US to Asia

·       Bitcoin was bullish but now it too is in a bubble.

Technicians Carly Garner and Larry Williams believe that there is too much bearishness in the bond market and in the US dollar so do not be surprised to see a rally in those areas. Larry Williams studying history states that 88% of the time, the market goes up during the first half of the year. Watch out for the 2nd part of 2021!

 Did you hear about the worldwide computer chip shortage and GM and other auto companies are reducing their output due to these limitations? As they have been doing for decades, China has been trying to corner chip market. It is their intention to have a monopoly on all needed material by stealing intellectual property of all western countries for decades. As analysts say, “chips are for this economy what steel was for the economy decades ago”. Where this will end is unknown to anyone.  Stay tuned!

Have a great month!

Fernando

 

January 5 Post

Happy New Year everybody!

 We had an 18% gain in November and we followed it up with a gain of 5.88% in December.

Our overall gain is at 112.90%. We started buying Apple in 2015 and now our gain for Apple is at 473%. We started buying Uber in 2019 and now our gain is at 255%.  We started buying WYNN, AMD, Boeing Face Book. TJX and Delta in 2020 (March) and they are so far up 214%, 149%, 140%,  99%, 108% and 110% respectively. What was the best sector in 2020? Technology was the best and Energy was the worst. According to long term analyst and astrologer Merriman, Oil is in a long term bull market as it bottomed out in 2020. My advice- Be super cautious with Energy! Also going by the “Dogs of the Dow” theory, energy in the Dow and also Intel might do well in 2021.

 Tesla went up by 700% in 2020!  If you had put $10K in to Tesla 5 years ago, today, you will have more than $230K. Tesla produces 1% of all cars but it’s market cap is bigger than all other automakers combined. Many advisors ask Tesla to buy Ford or Merc.Benz. Elan musk stated that he is not in favor of a hostile takeover but if an automaker makes an offer, he will consider it. It is a known fact that Musk wants to take Tesla private; that may be why he keeps saying that Tesla is overvalued. Musk is gift from God to the human race!

 Another interesting thing that happened in 2020 was the rise in the bond market after March 2020. At that time no one thought the Federal Reserve will “print money” to the tune of $8 trillion and many expected most companies to fail. One of the analysts taking advice from a bond guru who came on CNBC bought Carnival bonds with a yield of 11% around March 2020 and now the yield has gone down to 5%- in other words, a huge gain in those bands he bought 9 months ago. Bill Ackman was crying on CNBC in March 2020 asking President Trump to close down the country for one month to get rid of the covid crisis. Now we find that he is one of the best money managers of 2020. He invested $23MM in credit swaps and in less than 6 months, he turned that in to $2.5 Billion! His overall average gain for 2020 is about 70% so that implies he did poorly on most of his other trades. Analyst/astrologer Merriman says that one of his clients, turned $60K in to $750K in 2020 (by taking his advice).

 Larry Williams is a market technician who specializes in cycles and when Jim Cramer reported on his findings on 12/9/20, this is what I found interesting:

·       Market should start going up from 12/16/20 or so.

·       Till 12/16/20, the market could go down or sideways.

·       From 12/16/20 to the 1st week of January, the probability is high that we could see a significant gains in the market

·       Buy 5 days before 12/25/20

·       Sell retail stocks now as they have gained quite a bit in the Fall as he predicted months ago

·       Time to sell UPS and Fedex

This is what technician Bob Lang had to say on 12/14/20:

·       He is bullish on all casino stocks but some will fare better than others. With the expected better environment with China, casino stocks should benefit. Also aggressive stimulus fiscal programs in 2021, would benefit casino stocks.

·       WYNN-As I stated many months ago, Bob Lang states that WYNN would be one of the best “bets” for the casinos in 2021.

·       MGM- Made a “golden cross” in the chart so Bob is bullish on MGM

·       LVS or Las Vegas Sands- Per Bob, this one is not as good as the others but still look to be bullish in 2021.

I wish you a great 2021!

Fernando

December 5 Post

Hi There Again,

Did you take a look at our scorecard? Our portfolio was up 18.3% in November and we beat all 3 markets- S&P up 9.86%, DJIA up 11.25% and NASDAQ was up 10.79 from 11/1/20 to 11/30/20. Apple after going up for a long time is taking a breather. It has been stagnant for months but “Fibonacci Queen” Boroden expect it to go up to $150 but she does not give time limit but I think it will happen in late 2021. As I mentioned in my newsletter 2 months ago, the Santa Claus rally is going strong.

According to many technicians we are very close to an important high for the S&P500; why? When you take the March low and us Fibonacci numbers, we should peak at 3720 and on 12/4/20, S&P ended at 3699 so watch out for next week! I think a good correction is getting closer and closer and that would be a fantastic opportunity to buy more!

Last newsletter (for October 2020) was issued and sent on 10/31/20. In that I stated that most people are bearish with the elections and are waiting for the elections to have a clear winner to rally but I took the opposite side and I expected an immediate rally.  On 10/31/20, the DJIA was at 26,501 and on 11/24/20, it hit an all-time high of 30,116- that was a rise of 3,615 points in just 24 days! In my last newsletter, I also mentioned that after elections, the market goes up. Some believe that this bully will rally till Q1 2021 and then fall sharply. After March 2020, the market has forgotten how to fall sharply! Finally when it does, watch out!

Here are some predictions made by technician Sebastian on Mad Money (CNBC) on 11/13/20:

·       August 2020 to September 2020, the market went up and so did the fear gauge VIX which is a red flag (market heading for a decline)

·       Week prior to 11/13/20, market went up but the VIX declined-which is a bullish sign

·       Now we have a broader group of stocks going up-bullish

·       VIX for the Nasdaq or VIXN was at 29; normally it is about 23. That bearish for the tech stocks and Nasdaq

·       Huge rally expected for the Dow

·       Not so sure for S&P

·       Nasdaq might not go up

These predictions/observations were made by the technician Larry Williams on CNBC on 11/23/20:

·Retail stocks go up between Thanks giving and Christmas. (This really started early November)

· Amazon has been sluggish lately but expected to rise after Thanksgiving

· Expect Walmart to go up after Thanksgiving. Same true for ,Costco

Happy Holidays!

Fernando

November 2 Post

 Hello Again!

 Bulls make money, Bears make money but pigs get slaughtered!! Except for this final week in October, the market was really stagnant and boring in October. Finally it came back to life with a modest correction. I do not think it is over yet. It was like a perfect storm. Technically it was ready for a correction. Astrologically it was ready to decline. With the covid 19 situation getting worse with the election coming up soon, it was a perfect storm. Add to that the market did not get the stimulus package it expected from the government. Surprise! Surprise! Most of all, even after this decline, the market, especially the technology stocks are way overvalued. I am talking about “irrational exuberance” which is the favorite cause of market crashes. However almost all expect the markets to fall early next week. I am a contrarian. If everyone is on one side of the boat, I prefer to go to the opposite side. Don’t be surprised to see a rally next week. There are a lot of people waiting for the market to crash so they could have a buying opportunity; and that includes me!

After many, many months, I hear most people are negative on Apple! Whenever that happens, we have to get ready to buy more in the future! Some say Apple will go down to $80! Imagine that! Buy it at $80 and double it in 3 years or less for sure!

On a daily basis I watch a video by Carolyn Boroden aka Fibonacci Queen. It is my understanding that decades ago, she worked with Jim Cramer at Goldman Sachs. She states that according to March’s low, we have not yet come to the expected market top yet but that is close. Her advice to traders, “Not to be too concerned about the long-run and just take one decision to the next”. However long-term investors do not have this luxury. With Boroden, I pay a lot of attention to market indices and also to Apple as I trade in Apple options. She also analyzes bonds, commodities, and stocks like Amazon, Google, Microsoft, Facebook etc. On Apple she has a short term upper target of $121 (even though she is bearish on Apple)  and a long-term target of $147. At today’s prices (after 2020 split prices), we got our initial Apple purchases at $23 per share 5 years ago! After the 2020 split, it became very attractive for option trading. Tesla, just like Elan Musk, is in a universe of their own (too crazy to be in those stocks or options) ! Musk, one of the most brilliant humans alive! Boroden relies a lot on the 5/13 rule. She states that it does not always work but it is very reliable. What is the 5/13 rule? If the 5-day moving average is above the 13-day moving average, then it is bullish for that specific stock or market; and when the 5-day is below the 13-day, it is bearish for that specific stock or market. I tested it out and it works for me too.

Different technicians using different methods come to the conclusion that possibly within the next 12 months (anytime now?) we could have a market top and then the market would drop for 2 years as it did from 2007 to 2009. Merriman believes that DJIA could end up 2,000 to 6,000; and Robert Prechter expect the DJIA to go down to 1,000. 2020 was year when we had a depression coupled with irrational exuberance on Wall Street so intuitively I agree with those predictions. Who will get blamed for such a “correction”? Most probably the naïve Robin Hood investors and traders. I heard on CNBC that these Robin Hood folks boast about their achievements on Facebook etc. and many get their accounts hacked and money stolen! Being young and naïve! As they say, if it is easy for you to move around money with a “click”, then it is just as easy for hackers to steal your money with a “click” too!

Merriman (astrologer/technician) has been writing newsletters etc. for all markets for the past 40 years or so; and he has been doing the same for gold for about 50 years. He has some subscribers who have been with him for 40 years! On 10/11/20 he held a webinar that was attended by people in 10+ countries. He is from Arizona, USA but right now he is with his German born wife in Germany.  Some interesting points from the webinar:

·       New era starts on 12/21/20; that would last for 140 years. Jupiter/Saturn

·       1/11/21 to 2/17/21: “heavy energy”. “Difficult period” . Mars/Jupiter/Saturn/Uranu

·       After March 2021- A better time. “less fear”

·       2007-2009 Decline (53%) was worst since 1929/1932

·       Market should bottom between 2020 and 2023

·       Market should top out by December 2020 (Venus Retrograde) or between February 2021 and December 2021.

·       China hit a top in July 2020

·       US Dollar is in a downtrend; will bottom in 2024

·       Silver does better than gold during the last stages of a bull market for metals. Expect silver to go over $30. Even though it is unlikely, gold could get to $8,000 before declining for 30 years –somewhat like what happened around 1980.

·       Stand aside (no trades) till mid-November or so-Issued this early October.

In 2016, just before the elections, technical analyst Tom De Mark of DeMark analytics made some correct predictions. On 10/13/20. Jim Cramer featured him on his Mad Money program on the “off the charts” section. Here are some of the highlights:

·       Current upward trend is running out of steam.

·       DJIA could run up to 29,400 to 29,550 and then it will run out of steam.

·       The end is close

·       There will be another run up during the week of 10/13, and then the market will decline

·       Right before the election, the market will bottom

·       Just as it did in 2016, there could be a short stagnant period after the election but as it did in 2016, the market could have another rally thereafter

Are we going to have a leadership change in the market? Big techs like Amazon, Apple, Facebook, Microsoft have been leading the market for many years now. One of the big money managers who come on CNBC often that I respect a lot is Josh Brown. He stays connected to some of the most important people on Wall Street. On 10/22/20, on CNBC, Josh was talking about his talk with this “world’s best market technician” (did not name him) who is in charge of technical analysis for Soros. Soros is sure to hire the very best. Per Josh, this technician believes that all the big techs (i.e  Amazon, Apple etc.) made a long term top around July/August 2020 and they will not make all-time highs for many months to come. I am not so sure.

During October some finance and bank stocks came back to life for a while. Why? Interest rates or the bond yield on most treasuries went up and whenever that happens, banking and finance stocks do well.

By mixing stocks and stock options we can create many different avenues of revenue. Most of these methods will be taxed as normal income and not capital gains. I heard something on CNBC and I tested it out and this method has some validity. This guy who owns JP Morgan stocks, was selling call options on JPM, once a month and making a profit of 2% per month or 24% per year plus JPM dividend rate is at about 4% so the net profit is close to 28% per year. Let us say you bought 100 shares of JPM on 10/13/20 at $100 per share at a cost of $10,000. Then you “sell a covered call option contract” (one contract that cover 100 shares for $2 (price range $1.98 to $2.11); which expires 11/13/20 with strike price of $105. Given what happened over the past 3 months, it is unlikely that JPM would go over $105 by 11/13/20; and if that happens, the option will expire worthless and you get to keep your 100 shares and also you have already made a 2% profit within 30 days. Assuming you can repeat the same process month after month (as the guy I saw on CNBC on 10/13/20) , you will be able to earn 24% within the next year. Also you get the 3.56% dividend yield JPM was paying on 10/13/20. What happens if JPM go over $105 (let us say up to $110)? Since you have written a covered call, you cannot sell your 100 shares and most probably the buyer of the option will exercise his rights and buy your 100 shares at $105. So initially you got 2% for an option premium and now you get another 5% for buying at $100 and selling at $105. A cool 7% profit in about 30 days! If you are concerned that JPM would fall by about 25%, you can buy a put option for about $3 (3%) that expire in about 8 months. Nice way to get an income!!

Riding these waves could be risky. Trends can change suddenly. I noticed that Fedex has done better than most high flying tech stocks in 2020. In March 2020, Fedex hit a low around $90 and then rose to $270+!!! A couple of weeks ago, I thought to myself, “better late than never” and bought some call options on Fedex. In 3 trading days, they were up by 75%! However I did not sell them then the decline started. You win some and you lose some! Hope you will win more than you lose!!

 Have a great month!

Fernando

October 5 Post

Hi Again,

It is uncanny! On Wednesday evening Merriman (astrologer/analyst) stated that due to the upcoming full moon, on Friday (10/2), the market could fall and with Trump’s surprising news that is what happened! Reading Trump’s astrological chart, Merriman (a Republican and Trump supporter but very open minded) says that Trump might get much sicker in the future driving the market down but he also cautions but we will not hear the truth. Surprise! Surprise!

I wrote the last newsletter on 9/1/20 (being bearish), and on 9/3/20, all markets declined sharply! That happened after the market went up straight for 3 months!. CNBC show Mad Money with Jim Cramer features a technical analyst once a week in the segment Jim calls, “Off the charts”. On 9/9/20, Jim was talking about a well-known technician called Carly Garner.  Carley Garner is an American commodity market strategist and futures and options broker and the author of "Higher Probability Commodity Trading". What does Carly think of the near future? She is not happy with the market. She is expecting a bumpy ride till 1/1/21. Higher the S&P goes, more worried she gets. 75% for the S&P make an all-time high but it is expected decline sharply thereafter- fast and furious back to 3185 or 2750. Her advice : “Be cautious”

Technical analysis is more important than fundamental analysis but we cannot ignore the fundamentals. Technically the market was ready to decline but there were fundamental reasons for the fall too. For weeks many experts coming on CNBC have been warning of all the IPOs that were expected to hit the market and most hedge funds will have to sell their most profitable tech stocks to buy these IPOs. That is exactly what happened when software company “snowflake” came to market on 9/16/20. It almost tripled on the first day. When it comes to IPOs only the insiders who get to buy prior to the IPO coming to the market make money. Even before Snowflake came to market, it was way overvalued at 100 time’s sales. If I have a company with an annual sales level of $1 million, would you buy my company for $100 million? This is like 1999/2000 period. As Jim Cramer said, “If it is 30 times sales, maybe; if it is 50 times sales, walkaway; if it is 100 times sales, run for your life”! Apple is around 30 time’s sales. A very few stocks are driving the market. When those stock rise in price, so does the market; and vice versa. When Apple peaked a few weeks, the market cap of apple was more than all the Russell 200 stocks! In the past, investment gurus rarely changed but that is not true anymore. Warren Buffet is the God Father of value investing but he bought a 15% stake in Snowflake!

Another 2 sectors we have to look at for fundamentals are Oils and Banks. For years Jim Cramer has been asking people to stay away from oil companies and I disregarded that advice and paid a big price many months ago. As Jim says it, Oil for today is like what Tobacco stocks for 1999/2000- “a leper sector”. Several years ago big college endowment funds got hedge funds to move out of oil due to global warming. According to the IMF, it would take many years for the global economy to get back to the pre-covd19 state. Also the global economy is less dependent on “oils’ than it used to 30 years ago. China has enough oil in storage to last many years. Now out of all oil companies in the US, only Chevron has a solid balance sheet. Not even Exxon can say that anymore! Even during the oil spill crisis BP did not decrease their dividend due to pressure from pensioners in the UK but they did that in 2020. US fracking industry has so much debt, they have no choice but declare bankruptcy. Haliburton got out of US fracking recently. Chesapeake Energy declared bankruptcy 3 months ago. As for banks, how can they make money when interest rates are close to zero? It will be worse if interest rates go negative. Look at Europe and Japan! I am talking about the yield curve. Also with this depression that we are in, loan losses will skyrocket over the next 2 to 3 years. Banks are getting a lot of competition from non-banks. Jamie Dimon of JP Morgan is like the Pope CEO of banks but now JP Morgan’s  market cap is at $284B, while Paypal market cap is at $219B! Did anyone imagine that this was possible 5 years ago!

One day Jim Cramer, as many have done before him, was comparing 2020 to 2019/2020. Some have been noting the differences between now and then; for example most “fathom” NASDAQ companies did not have any earnings then. According to Jim, what was responsible for the 2019/2020 crash is very much alive now; and in big letters he wrote, “GREED”. I will go a step further and I will say that all big crashes that ever happened in the world came as a result of utter greed of investors and traders. Last month I talked about the biggest crash that ever happened – the tulip crash many centuries ago. Recently on PBS show called “Civilization”, they stated that around 1600, Amsterdam, Holland was the Wall Street of the world where everything was bought and sold. Once again turning back to Merriman, he states that due to Astrology (especially with Uranus which rules NASDAQ), early part of 2021 could be very bad for tech stocks. Using fundamental analysis that could be correct too. By then we would be getting close to a vaccine and more therapies for Covid19 and then it would make sense for people to sell tach stocks that created so much wealth in 2020 to buy “value”, “cyclical”, or whatever name you want call stocks. Boeing, airlines, cruises, hotel chains all could benefit from such a move.  Financials might move up if people expect the Federal Reserve to “raise” or “normalize” rates in the future. Oil stocks might get a temporary lift too. In the market it is quite normal to see people who hated a stock or the market making a U-turn all of a sudden,

Keep that in mind!

September 1 Post

Hello Again,

Please note that Apple split 1 to 4 on 8/31/20 so our past records including the average cost and past purchase values have been divided by 4 to make it a simple adjustment.

"Irrational exuberance" is the phrase used by the then-Federal Reserve Board chairman, Alan Greenspan, in a speech given at the American Enterprise Institute during the dot-com bubble of the 1990s. The phrase was interpreted as a warning that the stock market might be overvalued.

We are in that same position now!

On 8/25/20, On the CNBC show “Mad Money” with Jim Cramer’s “Off the Charts” section, Jim featured the technical analyst for hedge fund managers, Tom DeMark who has a perfect record-especially from February 2020 to August 2020.  According to Tom, US markets should peak within the next 2 weeks (by 9/16?). Technical signs are the same we saw in February 2020 before the peak. Comparing 1929/1930 to 2020, Demark stated that after the 1929 crash too we had an irrational market rally. Considering the time it took in 1929/1930, we are ripe for another crash. No one knows for sure that will happen or not but investors and traders are so irrational, it makes sense for us to have another crash.

Recently Josh Brown sold 20% of his holdings in Apple and Nvidia to reduce his exposure and manage his risk level and he quoted Warren Buffet to show that one has to walk away when the market is irrational-“ At the end game when the party is in full swing and everyone is drinking champagne it is very difficult to walk away from the party but to be prudent, one must get away from the party”. Japanese market topped in 1990 and it never got to that level over the past 30 years.  What was the biggest crash? It was the Tulip crash. Tulips anyone? Tulip mania reached its peak during the winter of 1636–37, when some bulbs were reportedly changing hands ten times in a day. No deliveries were ever made to fulfil any of these contracts, because in February 1637, tulip bulb contract prices collapsed abruptly and the trade of tulips ground to a halt.

Over the course of 2019, Tesla's share of the U.S. automotive market gradually rose to roughly 1.3 percent. If only the U.S. electric vehicle (EV) market is considered, however, Tesla is the market leader in battery-electric car sales for the United States. On 8/21/20, market cap of Tesla is greater than all auto makers in the world! In June 2020, Elan Musk founder/CEO of Tesla stock was overvalued at $700 but on 8/21/20, Tesla ended at $ 2,1049 with a PE over 1,000! I remember in 1999/2000, Yahoo had a PE of 1,000 but they did not survive. This is all due to a stock split which adds no value to the company. When the Tesla IPO came out in 2010, if you had put $10,000 in to Tesla, on 8/21/20, you would have had $1.2 Million! If you had put $10,000 in to Apple in 2010, on 8/21/20, you would have had $103,000. If you had put $10,000 in to Netflix in 2010, by 8/21/20, you would have had about $600,000. Please note that Tesla had a 5 to 1 split on 8/31/20 and per presplit prices Tesla ended 8/31/20 at about $2,500!! This is a bubble!

When corporate insiders buy their own stocks with their money, it is a sign that the future for that stock and company is good; and the opposite is true when “insiders” sell their stocks. A few years ago when the CEO of JP Morgan Chase bank Jamie Dimon bought his bank’s stock with $20MM of his money all bank stocks rose and also the market bottomed.  A few days ago (8/25/20) Apple CEO Tim Cook sold $131.8 Million of his own Apple shares. See what I mean?

Robert Prechter, using the Elliott Wave Theory was able to predict the future of the market for many years in the 1980s; and he predicted the 1987 crash 3 months before it took place. Here are some excerpts from his 8/14/20 newsletter:

When the mindset behind this correlation shifts, interest rates will rise, stocks and metals will fall, and the US dollar will go up.

As we have been reporting for several years, the two most important years indicated for the stock market turns are 2021 and 2022. The year 2022 unquestionably slated to mark a major low.

August 2020 was the best August since 1984 for the Dow and S&P 500 and the best August for the NASDAQ since 2000 !! Remember NASDAQ in 2000? When we had the dot-com crash and those stocks did not even come close to those levels since 2000. We are at the beginning of a great depression. All experts say that even with a vaccine, most of the jobs lost will never come back.  How did this happen? I follow the markets closely. After the March 2020 bottom, all prudent professionals stayed away from the market and advised others to do the same  but the market went up sharply; why? Due to the covid19 crisis, with no sports and casinos, and all working or staying home used the market as a gambling den. Then the professionals had a problem. When the market goes up and when their portfolios do not perform, they get fired by their bosses or from their customers. So the professionals came in to the market in droves. This kind of irrational exuberance can go on for a long time or it could crash tomorrow. No one knows what would be the catalyst for the next crash. Even prior to the February/March crash the market was way too overvalued and prior to January no one was able to predict that a pandemic would act as a catalyst for a market crash. An expert who has studied market for centuries stated that real crashes and deep recession come out of catalysts that no one was able to predict. Tulips anyone? (see above)

Have a great month!

Fernando

August 10 Post

Hi Again,

It is obvious that most experts/technical analysis are very confused with respect to this market. It is like 1999/2000 all over again. There are differences between then and now but as it happened then investors and traders are acting irrationally. I subscribe to 4 good “technicians’ on a daily basis and they are all confused. The least confused is the technician Carolyn Boroden or the Fibonacci Queen and that is because she takes a very short term perspective when it comes to the market. At this time she calls herself a “cautious bull”. Prior to 8/7/20, she was saying that there is “time resistance” for NASDAQ between 8/7 and 8/11/20 and after a long time, there was a minor correction in the NASDAQ on 8/7/20.  Ryan who writes for the “Trend Lizard” and uses the Elliott Wave Theory effectively, used to be a 100% bull till a few weeks ago when he called for a major correction but the market kept going up. Corrections are good for the long term health of the market and longer we go like this we invite another crash. Today (8/7/20), Ryan stated, “Deciphering near-term price action has been tricky, thanks to less than clear price patterns and exceptionally different patterns depending on which the market sector you are looking at.

At this point, it is hard to imagine what it would take to shake this market. This move has ignored bearish price patterns, market sentiment, technical indicators, the 200-day moving average, seemingly negative news headlines, the worst drop in history on quarterly GDP, and the list goes on”. Ryan advises his followers to stay away from the market till there are clear signs to enter the market. Robert Prechter who predicted the 1987 crash states that it is dangerous to be in stocks at this time; and he predicts that in a few years when this “Grand Cycle” ends, the Dow will be below 1,000 (it was close to 30,000 in February 2020). Merriman states that August 2020 is going to be very dangerous for the market and advises everyone to stay away from stocks.  On 8/7/20, Carolyn Boroden, in her daily video states in August 2020, there is a cluster of time resistance days that makes the market dangerous in August 2020 and the last time this happened was in February 2020. We know what happened in March 2020! She also correctly pointed out that for the first time in many months, NASDAQ, 5-day-moving average went under the 13-day-moving average on 8/7/20. This is a warning of danger that is fast approaching. On the other hand if that market has been down and if the 5-day-moving average goes over the 13-day-moving average, it is a “buy signal”. The 4 tech biggies move all markets. The market cap of Apple alone is 80% of the Russell 2000 stocks! Just since 7/1/20, Apple rose 24%! Since 3/31/20, Apple is up 100%!! For a brief period, Apple’s 5-day-moving average went below it’s 13-day-moving average which is a warning about Apple’s future. Some believe that China will react to Trump by banning Apple from China. Big tech companies get 70% of their revenue from other countries. If Apple crashes, it will take down the whole market! Most ETFs are heavily in to Apple and the tech leaders. Let us hope that we will have a deep correction soon.

Have a great month!

Fernando

July 13 Post

Hi Again,

Once again take a look at our score card; in June 2020 we had an average gain of 5.59%, in May 2020 the gain was 6.05%; and that came after a 7.66% gain in April 2020. We are in a very confusing time. There is a big disconnect between “Wall Street” and “Main Street” (economy). Since the end of March, the most prudent investors were avoiding this market but now slowly but surely they are getting back-as it always happen during the last stages of market that is overly bullish. The main reason why the market went up since March is that the Federal Reserve has been printing like there is no tomorrow. In one word- liquidity! How long can this go on? No one knows for sure but I think we could have a 50% to 80% correction within the next 12 months.  Apple, Amazon, Microsoft, Google (Alphabet) and Facebook has a combined market cap that is bigger than the Russell 2000 stocks!! That is scary!

More than 4 year ago we bought Apple at an average cost of $91.50; remember that time? That is the time when Carl Icahn sold all his Apple holdings and all top analysts stated that Apple is no longer a growth company and it is too big to be a growth company. On 6/30/20, Apple was at $364.80- a 293% gain! Our Uber gained 116% in 6 months! Boeing gained over 100% in 3.5 months. Casino WYNN also gained over 100% in 3.5 months.

There has been a lot of talk of all the sports gamblers who got in to market trading for the first time this year. You must have heard of the sports gambler from Barstool, Dave Portnoy. He does not understand that there is a difference between trading and investing. He once stated that Warren Buffet is “finished” as a trader and he is the new king. Warren Buffet was never a trader. Dave has over a million followers on his twitter so they were following his actions and in day trading in 2020, he turned $3MM to $300MM in less than 6 months! Some people were asking the SEC to investigate him. Did you hear about the college sophomore who killed himself over day trading?  I heard that he was trading “naked stock options” and he found that he lost $500K in a day but his brokerage company stated that it was just his understanding as he did not understand options. These are all signs that the market is topping but this could go on like this for a long time. One of the best market technicians I follow call herself a “Cautious Bull”. As she likes to say, “ I do not see any sell signals in NASDAQ”! Now Trump does not boast about the DOW and even he talks of the NASADQ. That shows he pays very close attention to the market.

Have a great month!

Fernando

June 4 Post

Hi there again,

Now we have had gains in our portfolio for 3 months in a row. May 2020 we had a net gain of 6.05%, and in April 2020 we had a net gain of 7.66;  and in March 2020 it was 39.80% for a total net gain for the portfolio at 61.14%. I do not expect this trend to continue. We could see terrific losses in our portfolio within the next 3 years and that will be a time to buy more to have a lower average cost. I have always asked you to keep 25% to 50% in cash but if you are over 50 years of age, you should have 90% in cash. Not in bonds! When interest rates are at 0 with a possibility of going negative, it is not good to be in bonds.

 Imagine this is 10/31/20 at 1pm Pacific Time and the stock market just closed and the CNBC just announced, “I have good news and bad news; bad news is that we have an unemployment rate of 50% and 90% of the publicly traded companies are saying that they will operate at a loss for ten years. Don’t be sad as the good news is that the Dow Jones Industrial Average just closed for the day at the one million mark. From the low of 18,000 on 3/23/20 to 10/30/20, the market rose from 18,000 to one million in 7 months!”. Get the picture? There have been many times when the markets have lost touch with reality or the real economy but what is happening now is simply ridiculous. Wall Street keep making up terms Can you guess the latest “Maxim of Wall Street” which became very popular among the professionals in May 2020? FOMO!

What does that mean? “Fear of missing out”! Get it? When a market is overvalued, most prudent investors and traders stay out of the market but then the market keeps going up and up like the ever ready bunny that cannot stop so after a while all the prudent (or some) start getting back in to the market. Let us say that you are a professional money manager who saw that this is an overvalued market and stayed out and in one year the market was up 100% and then your customers are going to leave you as you will be remembered as a bad money manager. That is FOMO!

Any good technician would say that when these FOMO people get in to the market then the market is ready to take a nose dive. One of the best on Wall Street, David Tepper says that this is the 2nd most overvalued market in the history of mankind and the most overvalued market was the 1999 dot-com market. Prior to that crash someone asked me why is Warren Buffet’s Berkshire Hathaway doing so badly at that time while the market was soaring as there was no tomorrow; and I told him that Buffet is right and the market is wrong.  After 20 years, Intel is still below its peak in 1999/2000! Yahoo had a PE of 1,000 around 1999. A technician that is an expert on cycles (Merriman) states that there is a possibility that the Dow could go down to the 2,000 to 6,000 range within the next 3 years. Elliot Wave expert Robert Prechter that I followed in the 1980s and who predicted the 1987 crash, states that a new super cycle started on 3/23/20 and when that ends the Dow Jones will be at 1,000. On this I agree with Prechter. I also believe that then it would take about 50 years to get back to 28,000 to 30,000 range. Unbelievable? Japan used to be the 2nd biggest global economy (just behind the US) from 1968 to 2010. Japanese stock market hit its highest point in 1990-30 years ago. Since then the Japanese market has been struggling to come up and it is up only 2/3 of the level it had in 1990. If you had $300,000 in the Japanese market index in 1990, now you will have only $200,000. Don’t forget that inflation has eroded most of that $200,000 over the past 30 years. I am quite sure that we are headed that way. Don’t get me wrong; I think our economy will be strong and our companies will be strong but since 2009, investors and traders have been overly optimistic and unrealistic with their investments and trades. The market is nothing but a reflection of “mass psychology” and it has nothing to do with politicians and business leaders. Buyer beware!!

I am following several good technicians for my trading purposes. Expect a lot of volatility-specially between now and October. Right now it is bullish but before July we could have huge correction.

Have a great month

Fernando

May 4 Post

Hi Again,

As I have always been saying, always remember to keep 25% to 50% in cash.

Take a look at our scorecard. During the month of April, our total portfolio had a net gain of 7.66%; and out total net gain (mostly from the 3/18/20 crash) is at 51.39%. As the market guru Peter Lynch said in the 1980s, the highest gain we get soon after a crash. Did the market hit a bottom in March 2020? Probably not; but it does not matter. If the market goes below that we could buy more as long as we keep our average lower than the current average cost. That is the secret! All the professional money managers I respect limit their purchases to the safest companies with rock solid balance sheets that did not decline that much in March 2020 but they also limit their upward potential. Higher the risk, higher the return. However it is very important to limit our exposure to companies that have a likelihood of bankruptcy; and that is why in the highly risky airline section to Delta and Southwest. In March 2020, I made some money by short selling (through put options) American Airlines as I believe that they will declare bankruptcy within the next 12 months. My puts had a strike price of $5. Last week an analyst downgraded American and stated that it is very likely that they would go bankrupt and set a price target for American at $1!

Last month I suggested the Casino, WYNN at $38 and now it is up 138%. At that time China was opening up and they get 60% of their revenue from China. Why did it shoot up? Their CEO was on CNBC with plans to open up casinos in Vegas. This world is full of gambling addicts. I made a lot of money on Disney, first short selling through put options and then on call options as the stock rose. Most people do not have an imagination. I wish I could talk to Disney execs about my idea for Disney. Monday through Friday, I watch or listen to CNBC Wall Street coverage from 4am to 5pm and I have not heard a single person mention my idea. Jim Cramer and other “experts” say that Disney theme parks (where they get 40% of their revenue) will come back only after we have a vaccine for the corona virus. I do not agree. As Amazon does, Disney can use a “fog” to clean out the virus periodically. Now Emirate Airlines give a 10 minute virus test and board only the people free of the virus in to the plane. Very soon Disney should be able to do that for their theme parks. Each theme park is a universe unto itself. If every person within the park is negative for the virus, there is no need for “social distancing” and wearing masks. All the people in the world are suffering from cabin fever so I expect most people would be eager to visit Disney theme parks. Once Disney announces that they have plans to reopen their theme parks, their stock price is sure to skyrocket.

As for my personal investments/trading, I am no longer in individual stocks. From 2/15/20 to about 4/1/20, I tripled my net worth by doing daily trades. I lost a lot and made a lot of mistakes too but that was great as I learned a lot from those mistakes. Now I am totally in to index options and no longer in to stock options (with a couple of exceptions like Disney and Boeing). In the 1980s when I got in to stocks, I wanted to find a way to predict the future of the markets and I found technical analysis. Most people do not understand the difference between “fundamental analysis” and “technical analysis”. In technical analysis. Even without knowing what they are studying they can use the same techniques to forecast the future of stock markets, bond markets, commodity markets, gold, oil, bitcoin etc. Here are some of the aspects of technical analysis (1) Charts study (2) Trends (3) Patterns (4) Moving averages (5) Measuring market strength (6) Cycles (7) Elliot Wave Theory (8) Dow Theory (9) Market Sentiment (10) Fibonacci numbers in charts. I just bought a book titled “Fibonacci Numbers” written by the “Fibonacci Queen” (Carolyn Boroden). She is one of the best technician and she has been doing this since the 1980s.Prior to the 1987 crash I knew that it was coming as I was following Richard Prechter who was using the Elliot Wave Theory.

 From birth, as it was done my parents and ancestors, I was a big believer in astrology and a few weeks ago my astrologer told me about an astrologer who was using astrology plus technical analysis for the market. I tested him out and I find him to be amazing. Many traders all over the world subscribe to his services and now he is going to start publishing in French and German too. Every Saturday I get 2 newsletters from his organization and they tell me what I can expect each stock index to do the following week and the days the market could reverse its trend. At times he contradicts himself due to the various astrological influences affecting at any given moment but with my intuition I pick up what is right for me. He has been amazingly accurate! For example, on Saturday 4/25/20, he predicted the market would go up at the beginning of the week and would start going down from 4/30/20-which was 100% accurate! He was correct about the previous week too. Most people look down on people who believe in astrology but this has been done for thousands of years and I laugh all the way to the bank! 4/25/20 to 5/20/20, my net account balance rose by 30%! Every Saturday, like child waiting for Santa on Christmas Eve, I wait for those 2 newsletters! According to those people, we could see extreme volatility and sharp declines in May 2020 and June 2020 as major planets like Venus, Saturn, Jupiter and Mercury go retrograde. More about this in future newsletters. A good market technician stated on 5/1/20 (on CNBC) , that he expect the market to fall significantly soon- On 5/1/20, the S&P 500 ended at 2830 and he expect it to fall to 2100 (about 30%)! Merriman (astrologer) expect for us to see the market bottom between 2021 and 2023 and the Dow going down all the way to 2,000 is a possibility. Now let us talk about sentiment. Per technical analysis, it is well known that when more than 50% of the investors think the market would go up in the future, market tends to go down in the future (a contrarian view). Over and over again I have seen that this is very true. This is especially true when “retail investors” (mostly naïve investors) are bullish. All the expert professional money managers I respect that come on CNBC are pessimistic about the market and they think the market would go down sharply in the future but they all say that all their customers are calling them to buy the most risky stocks right now! In 1929 before the crash when Joe Kennedy heard that his shoe shine was buying stocks, he sold his whole portfolio and did not get caught to the 1929 crash. As I said when more that 50% are bullish it is negative for the market so do you want to know how many “retail investors” (naïve investors) are bullish right now? 96% !!! The purpose of a market crash is to scare these people and bring some sanity to the market so I have a feeling that we could see the Dow going down all the way to 2,000 prior to 2023! Prior to 2/15/20 we had an unemployment rate of 4% and we have an unemployment rate of 30% now and yet the Dow and S&P is only a few points less than its all time high and a few days ago the NASDAQ was higher for 2020 as if nothing big happened in 2020!! What did Greenspan say a few decades ago, “Irrational Exuberance’? When the market fall to 2,000 or so, all the people would be crying about their retirement funds! Better be safe than sorry! As I always say if you always keep 25% to 50% in cash, you have a shot at recovery one day!

Have a great May 2020 and watch out for a wild ride in the market!!

Fernando

April 5 Post

Hi Again,

Winston Churchill, in  the 1940s, “Don’t let a crisis go to waste”.

Best buying opportunities in the past : 1973, 1982, 1987, 2008 and now 2020

March 2020 was the best month for the market since the 1930s! Shocked to hear that? So many buying opportunities! It was like being in a champagne Sunday brunch buffet for free!  Warren Buffet said that using dirty old boys words which I am not going to repeat here. From day one I have been saying that if we have a deep correction or crash, it is time to get rid of most of the stocks we had in the past and replace them with the bargains that is going begging. Did we hit a bottom? Are we close to a bottom in the market? I do not know and I do not care as it does not matter. Wall Street Great, Peter Lynch stated that we see the highest gains soon after a correction or a crash; and our scorecard (see above excel sheet) is proof of that. Most of the stocks listed in our scorecard hit a intraday bottom on 3/18/20. Carl Icahn said a few days ago that, “Some stocks are just being given away”. Another technical analyst stated that this is the best bargain prices we have seen in 50 years. Looking at our scorecard (in excel), from 3/18/20 to 3/31/20, in 13 days, Uber went up by 94%, Delta Airlines went up by 49%, GE went up by 34%, WYNN went up 68%, Facebook went up by 21%, TJ  Max went up by 46%, Boeing went up by 67% but prior to that Boeing went up 100% in 3 days! During those 3 days, Jim Cramer was shouting daily “Don’t buy Boeing” and I kept buying Boeing stock and call options. I was right and “guru” Jim Cramer was wrong! WYNN is down like 50% down from its high and as other casinos they get 60% of their revenue from China and China is coming back. Pretty soon they will run to the casinos with the newly printed trillions of dollars or yuans! Only Apple did not go below our previous average cost of $92.62 which we bought in 2015. All the other new entrants such as JP Morgan, Microsoft, Google, Southwest Airlines, Intel and AMD are good stocks to buy now and reap the rewards in about 3 years-and not before that. If it happens prior to 3 years, it is just icing on the cake. In  2009, when the DJIA was over 8,000 Warren Buffet called a market bottom and it went down to about 7,000 prior to skyrocketing and that was perfectly okay. Then it rose to 30,000 in 11 years. No one rings a bell to announce a market bottom. Can I give you a guarantee that you will not lose anything? No. There are no guarantees in life. Life and investments are always about taking a calculated risk.

For the past 10 years the market went up in a straight light and that is not normal. People who grew up in the depression were always careful about money. FDIC, unemployment benefits and other great programs that were created for most people came out of the depression. Over the next 10 years many rich people will lose everything and then they will realize the value of those programs. If you had money in the market in 1929, it would have taken you 30 years to get your money back.

 Most bear markets last 8 to 13 weeks and we are already 6 weeks in to this one. Even when the market was down 500 points, Boeing was up and that is a good sign. Over the last few days for the first time in a long time, there was stability in the bond market. Massive intervention by the Feds buying everything but high yield bonds is starting to payoff. This is excellent news for the stock market. Trump has been trying to bully the Feds to take interest rates negative and if that happens the bond market and the stock market will blow up. The bond market is much bigger than the stock market and it runs the stock market. Europe and Japan had negative rates and it did not do anything for them and all the money flowed to the US as it was the only place with no negative rates.

Jeffrey Gundlach, the king of shorts, stated that he made a lot of money shorting stocks over the past 2 months and now he is completely out of the shorting business. It makes sense. When the market goes up rapidly people who short stocks lose a lot of money.

Did you see the movie, “Big Short”?  Did you wish you got a piece of that action?  It is baack! It seems like we did not learn anything from our past. Carl Icahn is betting on another big short. Billionaire Carl Icahn is betting against mall owners. He thinks they will be unable to service their debt. A lot many traders have made the same bet and lost millions of dollars, but it’s not something that’s stopping Icahn anytime soon. You might ask how this trade is really happening, and what might be some of the ways you could get a piece of the action. The most simplified way of betting against malls would be to short (bet against) the companies that own the real estate asset. Or, you could just follow the money and do what Icahn is doing: trading on (against) the direction of an index called CMBX 6.

 We have to be careful of anything that comes out of communist China. Everything that comes out of the PRC is a fraud and a lie. Financials are not worth the paper they use to print the financials. Have you heard of Luckin Coffee (LK) which was supposed to chase out Starbucks from China? They just started in 2019 and growing very fast opening thousands of stores per day! First of all from a credit perspective starting in 2019, there is a 90% probability of insolvency within a couple of years. Any new company that grows too fast increases that insolvency probability to 99% (Remember Boston Chicken 20 years ago?).  Last Thursday, 4/1/20,  it came to light that they have been accounting fraud and in one day the share price fell 75%. No April fool’s joke! On 3/31, it was about $28 and now it is at about $5. Jim Chanos, another short selling king, who got his education at Yale and taught Financial Fraud at an ivy league college, and who predicted the Chinese Real Estate crash and Enron’s downfall, stated that all economic data that comes from China is manufactured by the communist party to fool the west. Chanos stated, “Avoid Chinese stocks like the plague”. He also stated that most West Coast (Silicon Valley) companies use questionable accounting practices. He was very negative on Uber where the success of the business model depends on having their drivers work as independent contractors and now that is under attack in California and in some other places. Chanos is still short selling Tesla. Chanos stated that he does not consider the market to be cheap here. He said that now it seems like Trump will lose the election and possibly the Democrats will win the White House with both houses in Congress and when they reinstate corporate taxes, earnings will go lower and increase the PE’s. Per Chanos, at other market bottoms, the PE would go down to 10 but we are not there yet.

Have an exciting April 2020!

Fernando