June 6 Post

Hi Again,

Are we headed for a recession?  Our portfolio is down 31% in 7 months; welcome to a bear market! Technically we had one quarter with negative growth so if we have another quarter with negative growth, we will be in a recession.

 Jamie Dimon (CEO, JP Morgan) warned investors to prepare for an economic “hurricane” as the economy struggles against an unprecedented combination of challenges, including tightening monetary policy and Russia’s invasion of Ukraine. “That hurricane is right out there down the road coming our way,” the JPMorgan Chase & Co. chief executive officer said at a conference sponsored by AllianceBernstein Holdings Wednesday. “We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.” Dimon said at JPMorgan’s investor day in May that there were “storm clouds” looming over the US economy, but he said he’s since updated that forecast given the challenges faced by the Federal Reserve as it attempts to rein in inflation. “Right now it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle it,” Dimon said (Blakewll & Dickson, Bloomberg, 6/1/22)

“The process of getting inflation down to 2% will also include some pain”-Federal Reserve Chairman Jerome Powell. Inflows of stock exchange traded funds in April 2022-$2,8 Billion, down from $76.2 Billion in March 2022. Growth in China’s trade fell to 3.9% in April 2022, down from 14.7% in March.  There was a 25% decline in mortgage originations in Q1 2022 from a year earlier. (Barron, 5/16/22)

Jeremy James Siegel (CNBC guest) is the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania in Philadelphia, Pennsylvania. Siegel comments extensively on the economy and financial markets. On 5/11/22, Prof. Siegel stated that (1) It would take about 6 months for us to see the full impact of inflation on the housing sector (2) The Federal Reserve should increase the interest rate by 100 bases points (1%) to show the markets that they are serious about combatting inflation and increasing confidence in the US dollar. That kind of move could create a crash in the market but then we can look forward to the end of this bear market. Assuming that real estate prices will never go down (as it happened in 2007/2008), many companies are buying real estate as they have too much cash on their hands. As we know from the past, scarcity can turn in to a glut overnight. Higher interest rates will make these speculators go bankrupt. For the first time in 20+ years, the Federal Reserve will stop buying mortgage backed documents. They should have done this last year. As Prof. Siegel states, even the Feds agree that they are way behind the curve. There is a difference between “inflation peaking” and “inflation under 2%(Fed target)”. However when we get signs that inflation has peaked, we are sure to see the bond market and the stock market (especially NASDAQ) rally and that will be an excellent opportunity to short sell the bond market via puts on the ETF, TLT (20 year Treasuries).

Well …. On 5/24/22, Prof. Siegel changed his story and that is because he got more data….

This is what Prof. Siegel had to say on 5/24/22:

·       The recent decline in money supply (created by the Feds) is the largest ever since 1962!

·       The Federal Reserve should go easy on increasing rates or we will have a very deep recession.

·       Inflation for 2022 is already baked in and the Feds should not try to slam on the brakes too heard due to inflation figures in 2022.

·       We had too my much economic stimulus (tax cuts etc.) under Trump and Biden.

·       His advice to the Feds, “You were too late to raise but don’t overdo it now”.

This is what Merriman (astrologer/analyst for 50+ years) had to say on 5/28/22:

·       Inflation has peaked (but getting it below the Fed target of 3% is long way off)

·       Instead of unloading their bonds to reduce their balance sheet, they should just wait and let their bonds mature and that is a better way to decrease their balance sheet.

·       The bear market will last for a while but we may have already seen the bottom of the stock market.

·       This short-term bear rally will last for a few more months.

What is “stablecoins”? Stablecoins are cryptocurrencies the value of which is pegged, or tied, to that of another currency, commodity or financial instrument. Stablecoins aim to provide an alternative to the high volatility of the most popular cryptocurrencies including Bitcoin (BTC), which has made such investments less suitable for wide use in transactions. In my opinion, this is a joke. Most probably it is a sales/marketing gimmick. There is nothing stable about stablecoins!

On 5/16/22, Barrons had a good article titled, “How stablecoins fueled the latest crypto crash”. The article started with the statement, “ Two major stablecoins fell below their pegs, highlighting growing risks of contagion from “crypto dollars” to broader markets. In that article, Stephanie Ouellette commented,” Once you are in the ecosystem, stablecoins allow you to act as though you have US dollars, when really you own crypto”. Stablecoin are designed to maintain a fixed value. Typically at $1 per token; but a fast growing “algorithmic” stablecoin called TerraUSD collapsed this past week to a few pennies on the dollar. This could shake the foundations of crypto. Stablecoins are the bedrock of trading and lending activities, providing liquidity to individual traders, funds, and market makers… (Jack Denton,Barrons,5/16/22)

As if Crypto investors don’t have enough to worry about, this past week, a 10-Q from crypto exchange, “Coinbase Global”, which had missed earnings estimates, suggested that customers could lose their assets if the company went bankrupt! On Tuesday evening, Coinbase CEO Brian Armstrong tweeted a clarification, “ We have no risk of bankruptcy” (Joe Light, Barrons, 5/16/22)

On 5/12/22, “Cryptos” (Bitcoin etc. – mostly stablecoins) were crashing and the stock market was falling hard but the bond yields were going down while the bond market was going up. My conclusion was that people/companies exiting other markets were going in to US Treasuries. If you buy a bond without getting in to a bond fund, you can wait and get your initial capital back. Over the next few months or years, interest rates will have to go up as the Federal Reserve is trying to curb inflation which is at a 40 year high. Therefore on 5/12/22, I bought more puts on TLT (to short the bond market) which seemed like a “no brainer” to me. On 5/13/22, the TLT puts I bought on 5/12/22 were up by 9% (in 24 hours)!

From day one I have been saying that Bitcoins/Crypto are dangerous-especially as a medium of exchange. Now more and more people are realizing that it is so. Statistics show that people in their 20s and 30s have 75% of their assets in Bitcoins/Cyrptos. That shows that they are being very naïve. Young questionable leader of El Salvador made Bitcoins their medium of exchange.  I had some put options on RIOT to take advantage of a possible bear market in Bitcoin etc. but I was right with the direction and wrong with the timing. In options one has to get the timing correct. Now you can see commercials how brokerage houses are offering Bitcoin as an investment tool for 401K retirement funds. It is a well-known saying on Wall Street that when the main stream media gets bullish, we should all be bearish and vice versa. A few weeks ago I saw a TV report on a 25 year old man who was saying that the Republican Party was going to be the party of Bitcoins and might even consider replacing the US Dollar with Bitcoins as we cannot trust the US dollar! Yet we can trust a software program that fluctuate wildly? Anthony Scaramucci is an American financier who served as the White House Director of Communications from July 21 to July 31, 2017. Scaramucci worked at Goldman Sachs's investment banking, equities, and private wealth management divisions between 1989 and 1996. Sacramucci, a big advocate of Bitcoins was very critical of Warren Buffet for saying that Bitcoins benefit criminals and tax evaders. Jamie DImon is one of the best bank CEO’s (J P Morgan) and he stated that they offer Bitcoins etc as they cater to the wishes of their customers but he is still very much against them. Buffet and Dimon have been expressing this view for years. On 5/12/22, Sacramucci was on CNBC saying Cryptos were overhyped! Really? People were buying houses etc. with Bitcoins! The US should have banned Bitcoins to stop or limit ransomware criminal acts. China (PRC) has limited the use of cryptos within China. On 5/12/22, CNBC announced that within the past 30 days, people invested in Bitcoins lost over $800 Billion and most of it was in the hands of people between 25 and 35! This is the lowest level of Bitcoin since December 2020 ! Youth and Inexperience!! Did anyone tell them about “diversification”? RIOT which used to move with the price of Bitcoin, was at $44 six months ago and on 5/12/22, it was at $7! On 5/9/22, I bought some puts on RIOT with a strike price of $3 (expiring 1/19/2024) hoping to make money with the final rush to Bitcoins and in 3 days, my puts were up by 10%! Their price is so low, it might get delisted soon. For years wall street experts were saying that Bitcoins has replaced gold as a hedge against inflation; really? I never believed it. Gold was never a hedge. There are TV commercials saying gold never goes down and it is a hedge against volatile stock markets. Really? Gold hit a high in December 1979 and thereafter it kept declining till October 2000 when it hit $448. I still expect Bitcoins to fall 90% from their all time high.” “Take a chill pill, stay long bitcoin, other cryptocurrencies like Algorand and Ethereum, and I think you’re going to be very well-served long-term in those investments, Scaramucci believes buyers need to look big picture when it comes to bitcoin, rather than asking what value bitcoin currently holds compared to a U.S. dollar”-when did Scarmucci say this? Not on 5/12/22; it was on 1/25/22! As I have been saying for years, Bitcoins will destroy millions of young people. There is nothing of value in Bitcoins compared to stocks like Apple or Microsoft  that could come back after a crash. I do not think we have bottomed as Apple and Microsoft have not gone down enough. Some say $120 would be a good low for Apple and some say it should be a $100. I think if Apple go to between $70 and a $100, we can assume that the broader market has bottomed. If Apple goes below $70, buying Apple will be like buying a “sure thing lottery  ticket”. All you have to do is to wait for 5 year or less. By the way, Warren Buffet is holding on to his Apple holdings.

Enjoy the volatile market! Volatility creates opportunities!

Have a great month!

Fernando

May 2 Post

Hi Again,

Nathan Rothschild, a 19th-century British financier and member of the Rothschild banking family, is credited with saying that "the time to buy is when there's blood in the streets." That time is getting closer!!!!

My put options on the bond market (TLT, HYG), Stock Market (SPY, QQQ, ARKK) have been doing well.  ETF QQQ that tracks NASDAQ, has been down significantly as those stocks do not do well when interest rates go up. On 4/4/22 I bought the put option QQQ with a strike price of $180 and that expire in December 2022; on the 4/29/22 close, this option was up by 89.67% in just 25 days!  It is too early to sell. I also have puts with strike price $160 so when the time is right, I will keep one and sell the other. ARKK ETF managed by Cathie Woods who is heavy in to NASDAQ high flyers were expected to fall significantly in a rising interest rate environment. ARKK puts expiring January 2023 with a strike price of $30, I sold on 4/27/22 after 30 days for a 118% gain. Since I had QQQ (NASDAQ) puts on September 2022 and December 2022, I sold the Sept 2022 puts on 4/26/22 morning when NASDAQ was down 100 points but I should have waited for the close when NASDAQ was about 500 points down. That is investing and trading! Cannot wait to maximize profits! My TLT (bonds) puts with a strike price of 110 and expiring January 2023 (bought 2/14/22) was up by 151.91% on 4/29/22, in 74 days! -too early to sell. Bought some TLT puts expiring January 2024. This is a no brainer as interest rates go up, TLT (bonds) will go down and my put options will go up. Most people in the market do not expect interest rates to rise that much but I do not agree as the Feds will keep raising rates to ‘drain the swamp” and cure the inflation problem. Just because there is supply side constraints, it does not mean that we should neglect the demand side which is fully under the control of the Federal Reserve. As I have been saying for a long time, a Fed Reserve President said that if markets do not fall significantly, they will keep increasing rates. This is just the beginning but the markets do not go up in a straight line and markets do not go down that way either.

On 4/29/22, we added Netflix to our portfolio. It will show up on the scorecard from June 2022.

Our purchase price was $190.36. I expect the price to drop over the next 12 months giving us an opportunity to purchase more and reduce our average cost. Let us assume that we bring down the average cost to $100. On 10/25/21, Netflix hit an all-time high of $690. If you look at the chart, it is clear that Netflix made a clear double top on 10/25/21 and on 11/8/21. As I started today, "the time to buy is when there's blood in the streets." . Just imagine Netflix going to $700 in 3 to 5 years- that is a 7 fold increase!

I decided to sell our RIOT holdings with a 49% loss during April 2022. RIOT used to reflect the price of bitcoin but no more. If that did not happen, puts on RIOT ciuld have been very lucrative. As I have been saying for years, now that the Federal Reserve is increasing interest rates, BITCOIN will not be attractive to fools who thought that it is a hedge against central banks increasing the money supply and contributing to inflation. Statistics show that young people have 75% of their assets in Bitcoins or Cryptos. What does it say about diversification? I am confident that one day we will see a 66% to 90% drop in the price of BITCOINS. Now companies are opening IRA and 401K accounts to BITCOINS and Cryptos. People who lost money in the 1929 crash, never forgot that lesson!

Have a great month!

Fernando

March 1 Post

Hi Again,

Raymond Merriman is a contemporary astrologer best known for his work in the astrology of the stock market. His formal education and training includes a bachelor’s degree in psychology (Michigan State University, 1969); postgraduate studies in clinical psycholog y, a life member of the American Federation of Astrologers (PLMAFA since 1972); commodities trading advisor (CTA, 1982); and series 3 and 7exams for commodities, financial futures, securities and investments (1986, 1989).

Currently, Merriman is president of the Merriman Market Analyst, Inc., an investment advisory firm specializing in market timing products and services. He is the editor of the MMA Cycles Report, an advisory newsletter issued 17 times a year, and used by banks, financial institutions, investors, and traders throughout the world since 1982.

Merriman has been quite good at predicting geopolitical events and market behavior. Now with all these global events, it is interesting to consider what he has to say at this point. Per Merriman Weekly Report dated 2/28/22:

·       The movement of all these planets from Capricorn (authoritarianism) to Aquarius implied the beginning stages of a more enlightened world population that will place more value on human rights, equality, and more freedom.

·       It is the end of an old cycle , which can be very difficult and resistant to change, and the beginning of a new cycle, which is readying to give birth.

·       I would think that within one year of the Saturn/Neptune cycle in February 2026, the current model of Russian governance will implode, as it has done consistently throughout history whenever Saturn and Neptune conjoin (every 36 years)

·       Mars moves towards Pluto on March 3, drums of war beat loudly.

·       Venus and Mars leave Capricorn for Aquarius in March 6, signs of peace and a reduction in violence emerge

·       Mars move towards Saturn on April 8, agreements may get violated and reinterpreted and twisted to imply something different than most everyone understood, and war drums beat again.

·       Jupiter applies to Neptune on April 12, another step towards peace can take hold. It could end there and things could start to stabilize. However it may not stabilize for long again as Jupiter moves in to Aries for the greater part of next year, with a greater demand for war machinery and weapons.

·       On top of all that, The US continues undergoing its Pluto return, which present an even more enormous challenge to the role and leadership of the US, both militarily and economically.

·       At this time as Jupiter applies to Neptune, we have a case for a speculative frenzy. It can either be irrational exuberance and hysteria, possibly leading to panic (or both), if not careful.

·       2/16/22 to 3/21/22 is one of the most important geocosmic time bands of the year.

·       Per Merriman again, “As VP Kamala Harris said recently in her meetings with European leaders, this is a defining moment for the future of the world”. She could be right

Apart from Geopolitics, Macroeconomic conditions rule all financial markets. In other words, it is all about the Federal Reserve and its intention to raise interest rates. As Martin Zweig warned us decades ago, “No one wins by fighting the Federal Reserve”. However according to one school of thought, this Russian invasion will make the Federal Reserve go slow on monetary tightening. That could happen but the main responsibility of the Fed Reserve is to tame inflation which is running at a 40 year high; and they are totally responsible for it. I agree with analysts who say that they should have started tightening one year ago. Even now they are buying mortgage securities which is inflating housing prices and rents to an unbearable level. Even though Presidents have taken credit or got blamed, most prosperity and hardships have come from the actions of the Federal Reserve. They are trying to have a soft landing but they always miss and overshoot and create recessions. That is not good for the Biden administration so even worse for the 85% of the population that earn less than $50K per year and got the last set of stimulation checks. In a time like this it is important to look at technical analysis or chart analysis.

Larry Williams has been trading futures, commodities, and stocks for over 53 years. Through good years and bad, he has worked tirelessly to bring his market wisdom to the rest of us, recording, writing, sharing and teaching fellow traders. Larry Williams has taught thousands to trade the markets, and has been the only futures trader in the world to repeatedly trade $1 million of his own money live at seminars around the globe. Larry's long list of best-selling books includes 1982's "How to Prosper in the Coming Good Years" which accurately forecasted the largest bull market and surge in economic growth in American history. He is a past board member of the National Futures Association and the recipient of numerous awards, including Futures Magazine's first Doctor of Futures Award, the Omega Research Lifetime Achievement Award, Significant Sig (a Sigma Chi acknowledgement), Traders International 2005 Trader of the Year, on October 6, 2002 the mayor of San Diego declared that day as Larry Williams' Day, and 2014 MTA (Market Technicians Association) Man of the Year Award.

Even before the market found a temporary bottom on 2/23/22, on 2/22/22, Larry Williams stated on CNBC:

·       Buying opportunity will emerge within the next 5 days

·       Compared to bonds, stocks are still undervalued.

Carter Braxton Worth, a 32-year Wall Street veteran, is the CEO/Founder of Carter Braxton Worth Charting LLC. He was Head of Technical Analysis at Cornerstone Macro Research beginning in 2016.  Prior to his role at Cornerstone, he was Chief Market Technician at Sterne Agee (acquired by Stifel Nicholas) and at Oppenheimer Holdings Inc.

This is what Carter had to say on 2/25/22:

·       Apple- For the week ending 2/25/22, Apple was still down 1.46% while all other mega teach were up. Compared to S&P 500, Apple is doing badly and the near term future for Apple is not good.

·       Commodity markets are close to a short term top, according to the Bloomberg Commodity Index. Carter recommends, “sell short and take profits”.

·       Where will the S&P 500 (SPY) be in 10 weeks? 15% probability that it will be higher and a 85% probability that it will be lower.

With volatility rising, there will be many opportunities for short term trading in all markets. Each time, the market goes up, it is a selling opportunity. Peter and Jon Najarian brothers who monitor option activity on a daily basis confirm that day trading volumes have been increasing exponentially over the past few days.

Have a great month!

Fernando

February 6 Post

Hi Again,

 We have not had a period of interest rate growth for a long time as there was no need for it as the rate of inflation has been low for about 35 years but now inflation is running at 5% or 7%. Now if the Feds do not increase rates, inflation can easily turn in to hyperinflation as we saw from late 1960s to the mid-1980s. Most market analysts have not being exposed to such changes or else they have forgotten what happened in the past. When Bernanke raised rates, all countries had problems as money flowed in to the US; even the Governor of the Central Bank of India lectured Bernanke in public. Europe and Japan have negative interest rates so when US rates go up, people all over the world flock to the US. We never learn from history.

Chinese President Xi Jinping took to the virtual stage at Davos to address Fed Chair Jerome Powell — please don’t lift interest rates. “If major economies slam on the brakes or take a U-turn in their monetary policies, there would be serious negative spillovers. They would present challenges to global economic and financial stability, and developing countries would bear the brunt of it,” said Xi, according to a transcript of his remarks on Monday. Of the major central banks, the Fed is expected to be the most aggressive, with financial markets now pricing in four rate hikes, and also expecting the central bank to start reducing the size of its nearly $9 trillion balance sheet. Yields on the benchmark 10-year Treasury TMUBMUSD10Y, 1.862% on Tuesday reached the highest level since Jan. 2020. Traditionally, Fed officials brush off concerns about how their policies impact other economies, saying they can only set policy for the U.S. economy. Xi has reason to be nervous about Fed tightening. China’s economy continues to slow, falling to 4% year-on-year in the fourth quarter from 4.9%. On Monday, the People’s Bank of China cut two policy rates by 10 basis points.(Steve Goldstein, Market Watch, 1/18/22)

Did you hear about Peloton (PTON)? Over the past 2 years during the covid crisis, many analysts would come on TV and say that people will never go back to the gym and all people will rely on PTON. That did not make sense to me. Investing in home gym equipment has never been a good thing and we know that pandemics do not last forever. I wanted to short sell PTON but I did not do it. On 12/21/20, PTON hit an all-time high of $162; and ever since then, it has been on the decline. Even a few days ago, around 1/15/22, some analysts were buying PTON stating that it has bottomed out. On 1/20/22, trading was halted twice as PTON announced that they are going to stop production as there is no demand for their products. The price of PTON was at $24. That is a 85% decline from the top! Now analysts are stating that if PTON gets delisted, it will be difficult to sell the stock. Net Income has been negative from day one! Remember dot-com stocks and 1999? These things happen in a bubble. When Feds increase interest rates, all companies with terrible financials will find it difficult to survive.  The latest news coming out of Wall Street shows that Amazon is interested in buying PTON. Lately Amazon has been buying companies that are not too good for their bottom line so they can add PTON as well.

What are the technical analysts say about the market?

Carolyn Boroden aka Fibonacci Queen is a technical analyst specializing in Fibonacci analysis. Her unique form of price and time analysis is quickly proving to be one of the most promising trading techniques using Fibonacci available today. Ms. Boroden's first book, Fibonacci Trading: How to Master the Time and Price Advantage, was published by McGraw-Hill in early 2008. Her services can be found on carolynboroden.academy and elliottwavetrader.net.  m 1/11/22, Carolyn stated the following:

·       The market will go down further

·       A major decline is in store

·       She correctly predicted the Nov./Dec. 2021 performance

·       New floor for Nasdaq around 15,000 (went down to 13,986 and now it is at 14,647)

·       If tech stocks go up, it is an opportunity to sell

·       Keep tech company stocks with solid profits and growth

·       The future looks ugly for Nasdaq.

Mark Sebastian is the founder of OptionPit.com and the CIO of Karman Line Capital.  Mark is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. The Author of the  popular trading manual "The Option Traders Hedge fund."  Sebastian hosts his own CBOETV show 'Track The Trade and is a  frequent guest on CNBC, Fox Business News, Bloomberg, First Business News.  He has been published nationally on Yahoo Finance and Barron's, quoted in the The Economist, The Wall Street Journal, Reuters, CNBC, & Bloomberg.  Mark has spoken for The Options Industry Council, the CBOE, the ISE, The CME,  and is a co-host on the Option Block and Volatility Views podcasts. This is what Mark stated on 1/21/22:

·       What happened on 1/21, was a “VIX swelling” (long term impact) and not a “VIX spike”. VIX is the “fear gauge’ or the volatility index.

·       Even when S&P went up, VIX did the same. This is a bad omen

·       The market is becoming irrational

After FB (former Facebook) went down by 25%, I bought a little bit, hoping to buy if it goes even lower. Then the price more or less stabilized. Soon after that when SNAP dropped in the same manner I was thinking of doing the same but I did not do it. Big mistake! Next day it was up by more than 50%!

Have a great month! 

Fernando         

January 10 Post

Happy New Year, Everybody !!

From 1/1/21 to 12/31/21, S&P500 rose by 31% and during the same time period, our portfolio rose by 47.18%!

 The Federal Reserve keeps announcing that interest rates would go up 3 or 4 times but the market has been ignoring those warnings. Sooner or later, the market will decline 30% to 60%. We too will get affected. If you want on the railway track towards an oncoming train thinking you have more time to get out of the way, you are a fool. Except for the mini crash that we saw in 2020 for a brief period, we have not seen a real bear market in a long time so it is understandable that people have a difficult time in believing that we would have a meaningful correction in 2021. I keep buying some put options on the S&P 500 (SPY) as a hedge. Also as interest rates increase, the bond market will fall. To take advantage of this situation, we can short sell the bond ETF called TLT. On 12/20/21, I bought some put options on TLT and on 1/5/22, in 16 days, my put options were up by 95% !!. The part of the market that would be most affected would be technology stocks with no earnings. Cash would be the safest place to hide. We can have a wish list of stocks ready so when the bear market begins, we can start nibbling at stocks that are expected to do well within the next 5 years.

This is what market analyst and astrologer just said about the market, “In the past, it hasn’t paid to fight the Fed when it was in a generous and accommodative mood. I suspect it won’t pay to fight the Fed when it says it is time to get off our addiction to the sugar highs of fiscal and monetary accommodation we have gotten used to over the past decade. It’s not a bad idea to get off sugar. Yet, as Jupiter continues to approach Neptune in Pisces in April, those with the sugar blues aren’t going to go down meekly. Inflation will likely be here a little longer, even after the Fed administers a heavy dose of distasteful medicine. But not to worry. I don’t think the Fed will last long either on this diet. Once Jupiter enters Aries, another fire sign, after May 10, I expect they will go for the sugar again, thinking they proved a point or feeling the heat of Aries now being administered by a government that never wanted to go cold turkey in the first place, especially heading into a mid-term election.” (Merriman weekly report, 1/10/22).

With Fed action, Mid-term elections and covid, get ready for a very interesting 2022!

Have a great month!

Fernando

 

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