Entries by Phil

Tricky Tuesday – Markets Flat Ahead of the Fed

What an exciting rally!

As you can see from our Big Chart, our indexes are up about 5% in the past 6 weeks and, so far, no sign of slowing down despite declining volumes.  The Russell (small caps) is our leader, with a 10% move in 6 weeks and only the one little pullback in early Sept – before a solid 7.5% move straight up since.  

As I noted on Thursday, we pressed our Russell (IWM) short positions using the Ultra-Short ETF (TZA) with Nov $12 calls, which were $1.35 at the time and are now $1.45.  Per our fabulous 5% Rule™, we expect a 2% (weak) retrace of the 10% run from 1,368 to 1,512, which was 54 points so 11-points back we'll call the 1,500 line and a stronger retrace of 4% would take us back to 1,490 (rounding again).  

We weren't too far off yesterday, bottoming out at 1,503 but we're pretty confident we'll hit our goal as the other indexes are at their 5% lines and not looking like they won't pull back a bit (1%) as well.  Not yet though, because tomorrow we get the Fed Minutes, which will tell us nothing new but will still be a good excuse to rally back a bit.  Also, the Dollar has dropped 1% since Friday and that is supportive of the indexes – as well as commodities and oil above $50 boosts the Energy Sector, which boosts the S&P, etc…

Anoter way to manipulate the markets is to throw out a bunch of upgrades like BAC upgrading Apple (AAPL) to $180.  AAPL is a major market-mover and BAC timed their report to come out on a very slow day, maximizing the impact of their report.  The reasoning is as bogus as the timing as BAC apparently JUST found out that AAPL will be able to repatriate some of it's cash from overseas at a low tax rate.  As I noted in our Live Member Chat Room this morning:

AAPL/Maya – If that isn't baked in by now, people are idiots.  Also, it's not true that AAPL somehow can't access their cash – obviously,


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Meaningless Monday Market Movement – Happy Columbus Day

In fourteen hundred and ninety two

Columbus sailed the ocean blue – and got totally lost, missed India by 6,000 miles but called the Native American Islanders Indians anyway, slaughtered them and stole their gold and, lacking any real wealth to go back to Spain with, instituted a slave trade that lasted 250 years and ruined the lives of tens millions of people.  Yay!  

I got called into the Principal's office when my daughter gave a report like that in 7th grade – just 5 year ago.  Suddenly, it's in vogue to question our "heritage" and the legends of the founders and that's a good thing.  You want Russians to question Marx and Lennin and you want the Chinese to question Mao so why shouldn't our children question Columbus and Jefferson?  Either you want to raise critical thinkers or you don't.

There aren't many critical thinkers playing the markets these days.  Over the weekend, Trump and North Korea continued their Twitter War after Trump's "calm before the storm" comments on Friday and Saturday afternoon, the President of the United States tweeted "Presidents and their administrations have been talking to North Korea for 25 years, agreements made and massive amounts of money paid…hasn't worked, agreements violated before the ink was dry, makings fools of U.S. negotiators. Sorry, but only one thing will work!" to which Kim Jong Un said that proved it was necessary to protect themselves against the “nuclear threats of the U.S. imperialists.” Kim Jong-un also said that North Korea’s nuclear weapons are a “powerful deterrent firmly safeguarding the peace and security in the Korean peninsula and Northeast Asia.” 

Senator Bob Corker, the Republican chairman of the Senate Foreign Relations Committee, charged in an interview on Sunday that President Trump was treating his office like “a reality show,” with reckless threats toward other countries that could set the nation “on the path to World War III.”  Other key quotes from that interview were:

  • "I know for a fact that every single day at the White House, it's a situation of trying to contain him."


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Non-Farm Friday – The Calm Before the Storm

Image result for trump calm before the storm cartoon"You guys know what this represents? Maybe it's the calm before the storm." 

That's the word from our President last night as he prepared for a dinner meeting with his military commanders.  The press asked him WTF he was talking about – as the President has many enemies he'd like to attack from Kim Jong Un to NBC News - who knows which way the drones are going to fly and Trump, ever the consumate game-show host, left us with a cliffhanger saying "You'll find out."  

Certainly Trump needs a distraction after such a terrible week for his Presidency and he's been working overtime to keep the haters spinning in circles, rolling back environmental regulations, arguing for gerrymandering in the courts, taking away birth control, taking away abortion (the GOP needs more poor babies to vote for them), demanding Congress violate the first amendment while defending the second in the wake of tragedy…  Hell, I bet you don't even know the US refused to join the rest of the civilized World in condemning the DEATH PENALTY for LGBT people in other counries

That's right, the US actually voted AGAINST a UN resolution that condemned the death penalty as a punishment for being gay.  This is not fake news, this really happend – in America – in 2017.  The fact is that we live in a world where even today gay people are being arrested, tortured and killed because of their sexual orientation. And the United States didn't just let an opportunity to condemn those atrocities pass by - it did much worse. It took a stand against that condemnation.

This latest vote came as a stark reminder that under the current administration, the United States hasn't just given up its commitment to advancing human rights. It has, instead, changed sides in that struggle.  The resolution urged countries that have still not abolished the Death Penalty (most countries have) to make sure it is not imposed as punishment for "apostasy, blasphemy, adultery and consensual same-sex relations."  That's right, blasphemy too – like speaking out against the Trumpster!  Maybe that's why you haven't heard about this from your regular news outlets…

The fact that the United States, the birthplace of the modern human rights movement, has opposed a measure
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Thursday Thrust – Markets Going Higher Just Because

The markets just don't go down anymore.  

I said the markets were broken the other day and this BAC chart spells that out.  We haven't had a sustained move down since last year as the market keeps grinding higher but it's all based on what investors HOPE is going to happen – not what is actually happening.  The "Hard Data" has, in fact, been crashing all year and the bounce we are currently celebrating is mainly due to post-hurricane buying – something we knew was going to happen but is still getting the markets very excited and now analyst/cheerleaders are extrapolating this one-time boost in buying ad finitum to entice more money off the sidelines and into the markets.  

Even Warren Buffett is getting into the act, virtually guaranteeing the tax cuts will pass (which should boost bottom-line earnings – even though no actual improvements in sales or operations will have occured) and going so far as to state that he isn't even selling his winning positions because he will save so much money next year on lower tax rates.  Of course Buffett is talking his massive book, which holds hundreds of Billions of Dollars worth of stocks at record highs.  So are all the other fund managers they are trotting out on TV – telling you how great the market is at this price.  

We are VERY reluctantly long still, but not so much.  Since our last Portfolio Review in mid-September, our Long-Term Portfolio has gained $48,000 (2.9%) while our hedges in the Short-Term Portfolio have dropped $30,000 so a net gain of $18,000 on our paired portfolios while we're putting in fresh record highs. 

Just this morning, we discussed, for the first time, buying NAKED LONG TZA Nov $12 calls, which are $1.35 with (TZA) at $13.15 so they have just 0.20 in premium and, if the Russell (now 1,515) does drop 2.5% to 1,477, the ultra-short ETF would gain 7.5% to $14.13 and the calls would be worth $2.13 – up 57% on a 2.5% drop in the Nasdaq so 20:1 leverage on the downside.  

I know I put up a lot of doom and gloom warnings in the morning Reports but that's
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What to Ignore Wednesday – How About $359Bn of Repo Failures?

$359,000,000,000.  

Even these days, that seems like a big number, right? It's not on the chart but you get the idea, the last time repo failure leaped up like this was ahead of the great crash of 2008 but why worry?  Both mini-spikes last year led to big market pullbacks but Trump's election saved us and now we're just happily ignorning over $1 TRILLION in failures in the past 3 weeks alone.  

A “ repo fail” is pretty simple and straightforward; when the obligation of any seller to deliver agreed upon securities remains open following the close of business on the agreed date of the transaction.  These are, after all, repurchase agreements, which means exactly what the name implies; I buy bonds from you today and agree to sell them back tomorrow (or whenever).  If I don’t sell them back to you tomorrow, we have a fail.  The reason for them relates to what repurchase agreements actually are; collateralized short-term loans, mostly overnight. They are structured as repurchases for historical reasons that since the 1980’s have been superseded by this reality.

In 2008, this relationship was very easily established; T-bill rates in particular would trade in equivalent yield far less than they otherwise “should” given money substitutes (such as the IOER). Bill rates fell sharply in the wake of Lehman’s insolvency, and repo fails exploded into what is now the textbook (well, one not written by an Economist, anyway) case.  Thus, whenever we find an outbreak of fails it is for various reasons a tightening of collateral conditions. Some prove innocuous; most do not, especially any that would linger.

Something is hindering the flow of collateral – what it is remains to be determined…

Image result for equifax hackI know there's a lot to keep track of but let's remember that Equifax was hacked and, if you are a US citizen who has ever applied for credit, then ALL of your personal information is out there.  Well, not ALL – just the stuff they ask you for on a loan application.  This morning we just head from Yahoo that 3 BILLION customer records were hacked at that company and, of course, there's the Wells Fargo nonsense – which shows you what
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Troubling Tuesday – Broken Market is Good for You but GREAT for Me!

Is everything really awesome?

Or is the stock market broken?  Can the stock market be broken?  Something is clearly wrong at this point as market prices have nothing to do with earnings, which have dropped dramatically this year, running 15% lower than they were at the start of 2017 yet the market is acting as if those projections were being exceeded by 15%.

As a fundamental value investor, it's very hard for me to get behind a rally that has taken the Russell (IWM) up 18% in 9 months and all of that has come since the Russell went back to 0% in mid-August – so we're talking 18% in 45 days.  Yes, there is a little sour grapes here as the Russell is one of our hedges but that's BECAUSE the run is so ridiculous – that's what makes it a good hedge (in theory).   

What makes it a bad hedge is it's been up 23 of the past 28 days – an incredible run that is very close to mirroring the previous record, which was set in 1998, right before the small caps collapsed 38%, leading the rest of the market lower in a correction that was sparked by concerns over Russia's economic collapse as well as data that showed the US economy slowing.  

Our biggest fear duing this rally has not been Russia but China and Japan, as both countries are 250% in debt and can't afford a misstep but, so far, they haven't had one and their economies have both shown signs of improvement this summer.  Despite the turmoil in Spain and Brexit, the EU seems intact and the broad story of a Global recovery seems to be holding water – so many good reasons for the broad-market rally to continue – but that doesn't mean the Russell can't be getting ahead of itself.

Of course the big catalyst is Trump's proposed tax cut – that's what sparked an 18% gain in 90 days but is the tax cut REALLY going to happen or is yet another Republican fantasy being sold to us by an Administration that is 0/1,000 in passing legislation so far?  

As…
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Mandalay Monday Mayhem – Biggest Mass Shooting in History Starts the Week Off with a Bang!

‘Horror show’: Vegas eyewitnesses recount chaos of Mandalay Bay shootingAnother day, another mass shooting.

At least 50 people are dead and 200 are injured as a gunman (American male, 64) opened fire on the crowd from the 32nd floor of the Mandalay Bay hotel in Las Vegas, which overlooked the concert.  According to the NRA, if only the crowd were all armed as well, they could have opened fire at the hotel and then the hotel residents, packing their legally purchased firearms, could have returned fire on the crowd and later we could sort through all the bodies and figure out who started it.  Wouldn't that be better than just banning the guns?

As it is, this is simply horrific and yet another concert tragedy to bookend the Summer of 2017.   The bombing in Manchester in May was terrorism, this was just a pissed off white guy, opening fire on a country music crowd, of all things.  There's no amount of concert security that can protect you from automatic weapons fire from a hotel across the street. 

All of Las Vegas went into lockdown following the incident, with flights grounded and guests ordered to remain in their rooms while police ran down leads on possible accomplices or other planned attacks.  Thankfully, nothting else has happened – but this one was more than enough!  

Typically, the markets seem unphased by tragedy – and there was plenty of it over the weekend beginning with the massive unfairness of the Trump Tax Plan, which turns out to be exactly what we thought it would be – yet another transfer of wealth from the poor to the rich.  As I have pointed out before, the rich have not gotten so rich that any attempt to increase their own wealth comes at a horrific cost to the "losers" in the equations – which is pretty much anyone not already in the Top 1%.  

The new tax framework, which the White House rolled out Wednesday, is heavy on cuts for corporations, which tend to reward shareholders, as well as reductions for business owners. As a result, its benefits are skewed toward the wealthy – just over half of the cuts, which total $2.4Tn over a decade, would go to the Top 1% of taxpayers, who would see their after-tax incomes
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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.  We started year two's first quarter, covering Sept-Dec with 22 of 30 trade ideas (73%) in the green but, for example, one of our 8 "losers" at the time of the review (2/20) 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


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PhilStockWorld September Portfolio Review

$2,093,910!  

That is a LOVELY $133,849 gain on paried LTP/STP Portfolios since our Aug 20th review.  I said at the time that it is ridiculous to make this kind of money in a month (6.8%) but I also said we'd be fools not to take advantage of the gift the market is handing to us.  The STP, where we keep our hedges, lost $6,813 as of our review date (these reviews are from last week) but that was lucky and now we're down to $460,302 but, on the other hand, the LTP is clocking in at $1,654,569 so $2,114,871 is up another $20,961 since last week – that's crazy!  

As I have been emphasizing all week, we are putting 25-33% of our long profits into our short hedges – in order to lock in those long gains.  When you are netting 6.8% even after the hedging that insures you will keep that 6.8% (or most of it) when the market turns sour, then you can certainly afford to be cautious.  At the end of the year, we'll be up 60-70% whether the market is up or down while, if you let it all hang out and went for 85% – maybe you'll have it at the end of the year and maybe you won't – I'd much rather be sure. 

Anyway, read my notes from the last report – no changes – we're cautious for the same reason but pay particular attention to the kinds of adjustments we made and how they worked out.  That's another HUGE benefit of keeping our portfolio well-balanced – the stability gives us lots of time to tinker with and perfect our positions as it's very easy to make a few minor adjustments, when you don't have to worry about having to make a major one…

Short-Term Portfolio Review (STP):  $487,027 is down $6,813 from our 8/15 review but no apologies there as it's fantastic that that's all we lost while the LTP made 6 figures.  That's because we made sensible adjustments back on the 15th but, otherwise, we didn't touch our STP, which has $481,657 in CASH!!! – just in case we ever need some money if things do go on sale.  

Despite the mountain of CASH!!! (we started with just $100,000 on 11/26/13), we are…
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TGIF – Markets End the Quarter at All-Time Highs

Well, we did it!  

All of our indexes, exept the Nasdaq are at their highs and this party looks like it's never going to stop as long as people are willing to believe that Trump's tax plan will help the Middle Class or the Economy or that the Fed withdrawing stimulus will have no effect (even though adding stimulus had a HUGE effect) or that as long as you don't hear about North Korea for a week because people are worried about who's kneeling at a football game – that all is well in America.  

And how can things not be great?  If the facts don't fit the narrative, they change the facts.  Treasury Secretary Steve Mnuchin told the press in Las Vegas that workers benefit the most from Corporate Tax Cuts and, if you think that sounds preposterous, you could have fact-checked it with a 2012 report from the Treasury's Office of Tax Analysis that showed workers pay 18% of Corporate taxes and owners pay 82% so what Mnuchin claimed is only about 450% untrue.   When challenged on this — the Treasury department REMOVED the report from the public records.  

“Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right.” – Orwell, 1984

Image result for trump tweets cartoon1984 was not meant to be an instruction manual!  It's not legal to alter or remove Government records – even if they do contradict with the bullshit you are currently spouting.  When Trump deletes his embarrassing tweets supporting politicians who get trounced in elections – he's committing a Federal offense in violation of the Presidential Records Act of 1978, which was introduced in the wake of the Watergate Scandal to prevent exactly the sort of thing this administration is doing.  

Meanwhile, in another nod to Nixon, the Administration is compiliing an enemies list and
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