Monday Market Movement – Countdown to June Swoon

Will this market ever go lower?

If not, it's very easy to make money in a never-ending bull market.  For instance, the S&P ETF (SPY) is currently at $244 with the S&P at 2,439, so they run pretty much neck and neck and, if we think the S&P isn't going lower, then the SPY Jan $236 ($14)/245 ($8.05) bull call spread is $5.95 and we can sell Jan $212 puts for $3 to net $2.95 on the $9 spread which will make $6.05 (205%) by January if SPY is over $245.  That's how easy it is to triple your money in a bullish market and, if you want to check out a dozen other examples of that technique working over the past 6 months, check out our Top Trade Review, with our first 14 trades (2 months) of 2017 netting $19,185 so far.  

Making money in a bull market is easy, the trick is not losing it when the market turns sour!  We only had 3 losing Top Trade Ideas (out of 14) in the first two months of 2017 and one of them was a Russell (TZA) hedge, which was SUPPOSED to lose money if the market went up.   By funneling a percentage of our profits into well-constructed hedges, we are able to lock in a substantial portion of our gains against a downturn.  We had that tested a few weeks ago when the market dipped and our portfolios passed with flying colors.  

In fact, we actually make more money on the way down than we do on the way up because we're tilting bearish with some highly-levered positions but we did have to adjust a few last week to reflect the possibility that this market is going to keep going higher and higher and never ever stop – because that's kind of how it feels at the moment.  

As I've noted before and as you can see on Doug Short's Equities/GDP chart (the Buffett Indicator), this market is getting a very 1999 vibe and only in 1999 has the market gone this insane with valuations.  Never before have so many people paid so much money for such little earnings!  

When the DotCom bubble burst in…
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Philstockworld Top Trade Review

Image result for top trade ideasTop Trades has become one of Philstockworld's most popular Memberships and that's a shame because I actually hate trading services that just give out trade ideas.  Unfortunately, that's what the market demands and, though Top Trade Members miss out on the trading education and deep discussions we have in our Live Member Chat Room, they usually do get a lot of great trades.

We began Top trades in August of 2015 and year one saw 96 out of 119 Trade Ideas (80.6%) made money immediately (by the first review) and half of the intial losers turned around over time as well.  As of our prior review, covering Sept-Dec, we had 22 of 30 trade ideas (73%) in the green already but, for example, one of our "losers" was RH – a trade that was in our Long-Term Portfolio:

As of the last review, we only had the short puts, which were down $1,400 (23%) so a "loser:" and, at the time (2/20), I said:

As you can see, they hit our target floor at $25 but we were in Vegas and forgot to add the bull call spread at the time – though I still like the plan.  The puts, by themselves, are now $7.40 ($7,400) so down $1,400 (23%) and I still like that sale along with 10 2019 $25 calls $9.75 ($9,750), selling 10 of the $35 calls for $6.20 ($6,200) for $3,550 so we still have a net $2,450 credit (or a $3,850 credit if starting from scratch) and our worst case is owning RH at net $22.55 – 16% below the current price.  That's an official add for our LTP!  

Obviously, the situation has much improved, despite the recent pullback.  The short 2019 $25 puts are down to $4.10 ($4,100) and the 2019 $25/35 bull call spread is in the money at $7 ($7,000) for net $2,900, up $5,350 (218%) from our original net $2,450 credit and well on the way to making the full $10,000 (still a good trade if you can settle for a double).  

The secret to
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Non-Farm Friday – Is America Working?

Unemployment is LOW! 

As noted in the Fed's Beige Book (which we discussed in Wednesday's Live Trading Webinar), low unemployment is restraining growth due to a lack of qualified applicants.  Low immigration isn't helping either – to the point of crops rotting in the fields due to lack of laborers.  The Fed is becoming very concerned about rising wage pressure, which can quickly eat into Corporate Profit Margins – especially when they are still having trouble pushing price increases through to the consumers.  

The ever-weakening Dollar means the workers have less buying power with the Dollar falling 6% since Trump took office (making America eh again) – effectively cutting the buying power of 160M workers by 6%, which is like losing 9.6M jobs yet today Trump will celebrate and take credit for 1M new jobs created under his regime – at the same 200,000/month pace we've been on for 5 years (thanks Obama).  

What we really have is a net loss of 8.6M jobs worth of buying power and it's been great for Corporate Profits as companies get paid in weak Dollars (very good for S&P companies, who get half their revenues overseas) and pay their workers in weak Dollars, which greatly inflates their Net Income – for now.  Restaurants are one of the first industries feeling the pinch of diminishing buying power as traffic is down 2% overall, most notably on 433M less lunches taken.

Restaurants are doing what every industry will have to do in a tight labor market, they are raising prices and HOPING not to lose too many customers as a trade-off.  Unfortunately for restaurants, food at home is getting cheaper at the same time – making the trade-up to a meal out a more and more expensive decision for consumers. 

The pain is spreading to suppliers. Meat giant Tyson Foods Inc. recently said a 29% drop in quarterly earnings was due partly to the decline in restaurant traffic.  “Consumers are buying fresh foods, from supermarkets, and eating them at home as a replacement for eating out,” Tyson Chief Executive Tom Hayes said.

The average price of a restaurant lunch has risen 19.5% to $7.59 since the recession, as…
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Thursday Thoughts – Fed Blowing Housing Bubble 2.0?

Here we go again.

As you can see from Naked Capitalism's Case-Shiller Chart, those who forget the mistakes of the past are doomed to repeat them and we just passed the last "out of control" housing peak.  As the Fed's Neel Kashkari said about housing prices:

“It is really hard to spot bubbles with any confidence before they burst.  Everyone can recognize a bubble after it bursts, and then many people convince themselves that they saw it on the way up.”

As noted by Scofield, it's really not hard at all to see when you are in a bubble, the hard part is predicting when they will finally burst.  Housing prices jumped 7.7% from last year, far outpacing the growth in household incomes, thus making homes more and more unaffordable for the average buyer.  However, the people buying homes are above average – generally in the Top 10% of Income Earnings which, in Donald Trump's America, makes them better people than the other 90% of you and more deserving of a good home.

After all, what else matters in life but how much money you make, right?  Of course right – you voted for it!  

Some regions are more bubbly than others, mostly in Texas and out west (Seattle, Denver, San Francisco) with massive gains since the last bubble burst.   Yesterday's read on the Beige Book shows an economy that does not support this kind of housing recovery and just last night, San Francisco Fed President John Williams said the Fed is still on path for 2 more hikes in 2017 with a goal of 3% by 2019.

That's up 2.5% from where we are now and do you know what happens to mortgage payments when they go from the current 3.5% average to 6%?  Again, we only have to remember what happened in 2007/8 but, for example, a person buying a $250,000 house with a $200,000 mortgage pays $898/month at 3.5% but will pay $1,199/month at 6%.  That's $300/month more, which is 33% and people don't buy houses, they buy mortgages so it's going to be up to the homeowners to bring the price of the home down low enough…
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