Annuities vs Income Fund – Round One

Which Can Give You A Higher Income? The Annuity Vs The Stock And Bond  PortfolioWith the Fed keeping rates artificially low, my Mother and her friends began to have problems with their retirement accounts.  

Annuity accounts there were paying them 5-6% a year and covering things like mortgage payments and utilities began paying 3%, 2%, even 1% and forcing them to pull money out of their retirement accounts to pay their bills.  Once you begin to go down that path – it's very hard to get back on track – especially for people whose earning days are long past.  

Doug Rapoport is the Fund Manager for Capital Trading Ideas, PSW Investment's hedge fund and he and I sat down and designed a new hedge fund that is based on our "Be the House, NOT the Gambler" that has been successfully practiced in our Butterfly Portfolio for over a decade now.  Working together, we came up with an Income Fund strategy that combines a predictable quarterly withdrawal without sacrificing the potential for growth and, though it's only been two months since we launced – I thought it would be a good time to report on our progress – especially as people interested in participating in quarter 2 MUST have their documents ready and money transferred by September 30th.

Here is Doug's Report:

Back in March 2001, I was an Executive Vice President at Gruntal & Co. acting as a financial advisor while also handling insurance needs and estate planning.  I was recently lured to their Fort Lee, NJ office after working on Wall Street and midtown New York for the previous 8 years including a year in the World Trade Center.  At the time, I lived in Edgewater, NJ which was the next town over so the 5 minute commute and the large bonus checks that were common at that time made the decision very easy for me. 

We had just come out of the massive dotcom bubble burst where many tech companies fell as much as 90% if they stayed in business at all.  And many other non tech companies were dragged along with it.  There comes a time in your life when some experience, gut feeling, and homework are amplified with a large amount of luck.  Before the…
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Monday Market Movement

Yet another chance to short oil at $43.50!  

What a great way to start the week and we had 3,500 on the S&P (/ES) and 12,000 on the Nasdaq (/NQ), 28,750 on the Dow (/YM) and 1,585 on the Russell (/RTY) this morning and the best way to short the indexes is to short the laggard.  In other words, wait for at least 2 of the indexes to cross below those major lines and then, as soon as the 3rd one crosses below, short that and STOP OUT IF ANY of the indexes goes back above their line.  If the 4th one confirms by crossing under – you are probably in great shape.  That limits your losses but not your gains – it's a money-management style of playing that can be very effective in the long run as a single win can cancel out many losses.

Tesla (TSLA) split 5:1 and Apple (AAPL) split 4:1 today so Tesla shares went from $2,213 to $442.60 and AAPL went from $499.23 to $124.80 and both are up slightly on that action but they've been bid up so much the past few weeks in anticipation of the split that I don't think there's much gas left in the tank but I did say that at $1,250 on TSLA and again at $1,950 (now $390) and so far, so wrong on that one.  

No matter how you split it, TSLA is a one-stock bubble and $450 is a market cap of $415Bn – more than the ENTIRE rest of the auto industry combined and they sell 100M cars per year and TSLA sells 400,000 or 1/250th as many.  So, unless those cars cost $10M each with a 15% profit margin – their valuation makes no sense at all.  You can't "grow into" that sort of valuation.  Even if TSLA were going to be the ONLY car company in the World with the best margins in the World (car companies generally make 10% or less) – how long would that take?   They are being priced like that now!  

Elon Musk puts his case for a multi-planet civilisation | Aeon EssaysYet people are paying it.  There's a sucker born every minute but now that they've done a stock
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Federally Fueled Friday – Powell Gives Us a Big Finish

Down and down the Dollar goes.

Powell pulled out all the stops yesterday, saying the Fed was no longer worried about inflation and would spend 5 years boosting the economy if they have to.  While Republicans love to pretend they don't tax you, devaluing all the money you've ever made in your live and most of your assets by 10% by reducing the value of the currency is kind of a tax, isn't it?  

The wealthy have all these great ways to keep up with inflation but, if you are a regular person getting a regular paycheck which comes in the form of Dollars – you got a 10% pay cut.  Not only that but not only does the deficit swell due to that same lower tax rate (for the rich) that causes the Dollar to collapse, but the thing the Government needs to buy with those tax Dollars begin to inflate, causing an even bigger deficit as Government Spending can't keep up with inflaiton.

Tommy Trenchard on Twitter: "Latest pics for the Wall Street Journal out  today, with @MatinaStevis's report on the shift from cash to mobile-money  in #Somaliland, where a few dollar bills will get4 more years of this and we'll need a shopping cart just to carry the money we'll need to buy groceries!   Of course, hyperinflation is a great way to pay off your debts as the economy can grow along with inflation (it's just your wages that don't keep up) while the long-term interest rates are fixed, so the money the Government pays back becomes worth less (worthless?) and PRESTO!, debt problem solved!  

Many 3rd World countries go down this path to pay off their debts but it is just as much a confiscation of wealth from the people as any tax ever was but, fortunately, those of us in the Top 1% can simply manage our investments to stay ahead of the game – lucky us!  Our Trade of the Year was GOLD, because we expected some inflation due to Trump's market-boosting policies but we're now operating at a whole new level – he has certainly kicked it up a notch and now Powell is on the bandwagon too.

Speaking of America becoming a 3rd World country under Trump, his…
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GPDThursday – Can Powell Reassure the Markets?

GDP is coming at 8:30 and it's going to suck.

-32.5% is expected and it's the 2nd revision to Q2's GDP, so there's not likely to be anything very surprising.  As we noted yesterday, what really matters is how much Q3 improves but we're a long way from finding that out so people will speculate off Q2 and that's why Powell is scheduled to speak at the market open – in case we start selling off as people realize a -32.5% GDP doesn't quite square with record-high equities.  

Covid cases are over 24M this morning around the world and India is seeing a record spike and South Korea, Italy and France reporting the most new daily infections in months.  The US has gotten their infections under control by no longer testing people.  The U.S. Centers for Disease Control and Prevention’s shift in guidance on Covid-19 testing away from asymptomatic individuals this week alarmed many public-health experts who say it’s a wrong turn that could restrict how many tests are performed.  

CNN reported on Wednesday that the CDC guidance change was due to pressure from Trump administration officials, citing an unidentified official. New York Governor Andrew Cuomo called the move “political propaganda” and an effort by President Donald Trump to bring down the number of cases with less testing.

Public health experts said the new guidance, released as part of an unpublicized update to the CDC’s website, could in fact cut down on testing.  “This makes no sense,” wrote Leana Wen, a physician who formerly led Planned Parenthood and currently serves as visiting professor of health policy and management at George Washington University, in a tweet late Tuesday. “We need more testing, not less.”  Howard Forman, director of the Yale School of Public Health’s health-care management program, called the shift “insane and counter to all the best evidence that we have about how testing is supposed to work and appears to work.”





Which Way Wednesday – Hurricane Edition

Hurricane Laura is coming.  

It's a good excuse to get Oil (/CL) back to $43.50 but it makes a nice short there as nothing else is going on in the energy market to prop it up.  We do have a holiday weekend approaching (next Friday) but driving is mostly off the table this year and, for oil, I'm a lot more concerned with the Dollar bouncing back from it's -10% position and kicking oil's ass after Powell's speech tomorrow at the Jackson Hole conference.  

While the Dollar deserves to be weak, it's weak relative to what?  All the other countries are printing money too – maybe not as fast as we are but the US Dollar is 60% of all the World's currency so, if we are debasing it, we'd have to debase it twice as hard as the Euro (30%) to fall as fast. 

Infographics: Global coronavirus stimulus packages compared ...Europe has indeed spent about half of what we've spent on stimulus but they've spent it much more effictively and seem to be getting their virus under control.  Japan has spent the most, by far and the Yen is another major currency the Dollar is measured against so why should the Yen be higher against the Dollar?  It makes no sense, so the Dollar is probably too weak now and a move back up in the Dollar to 96 will likely knock commodities and stocks down about 5%.





Toppy Tuesday – As Usual

Back to our highs, again.

And what do we do when we hit the 20% line at 3,420 from below?  NOTHING!!!  What do we do when we cross under it from above shortly after that?  We short it!  That's right, the 5% Rule™ is not very complicated.  In fact, this chart is saved in my StockCharts profile as "S&P 500 Large Cap Index ($SPX) Feb 6 2020" which means we've been using the SAME chart since before the crisis and we're STILL right where we expected to be over 6 months ago

Remember, the 5% Rule™ is not TA – it's just math!  Math is real, TA is not…  

Math told us we'd bottom out at 2,280 and we went long at 2,280 and did very well and math told us we'll top out at 3,420 and we got much more bearish last week and now we'll see how that plays out.  Hopefully, for the sake of the investors that are irrationally exuberant, we won't go down as sharply as we did in March.  In fact, we can go down 20% and still be on a bullish track – as long as our "Must Hold" levels do continue to hold.  

Unfortunately, the Must Hold levels are NOT holding on the NYSE and the Russell 2000 – our two broadest market indicators.  That's because, as I noted in yesterday's Report, this is a very narrowly focused rally led by the Tech Titans












Just Another Manic Monday

Virus cases are down.

President Trump was right – as soon as we stopped the CDC from counting cases, less cases have been reported and the official number of US virus cases has dropped off considerably.  That's SCIENCE!  As you can see from this New York Times chart, however, there's a very suspicious amount of states that are way over the US Average, which indicates the US average is simply not reporting all the cases.  SCIENCE!  

Also, as pointed out, even our best states are having more cases than the 10 WORST countries in the world (besides ours, of course).   Meanwhile, we have a new miracle cure – exactly the kind of cure rich people think up – we take the plasma from people who have recovered from covid and inject it into people who've been exposed.  It's called "convalescent plasma" and it's based on the same sciency-sounding principle that has old, rich people getting transfusions from young, healthy people to "keep their blood fresh".  

Trump has had the FDA grant this "treatment" and emergency-use authorization which is like the FDA saying "This could be total BS but we don't have any better ideas, so what the Hell?"  Trump also had the FDA grant the same authorization to hydroxychloroquine back in April and it was revoked in June once a few studies were done that showed the "treatment" to do far more harm than good.    

NONETHELESS, Global markets are rallying this morning on news of a "cure" with the Dow back above the 28,000 line but we're still shy of the February high of 29,500.  The S&P 500 is over 3,400, where it topped out before and the Nasdaq was 9,750 before the crash but now blown past it at 11,680 – 20% over the pre-crash highs and 50% over the lows of March.

Of course, the reason the Nasdaq 100 is doing so well is that it is the most concentracted index on FAAMG:  Facebook (FB), Amazon (AMZN), Apple (AAPL), Microsoft (MSFT) and Google (GOOGL) – our Trillionaire Corporate Citizens.  Those stocks are up 35% for the year, adding $3Tn in market cap in 8 months so, if you're wondering where all that stimuluss money went, look no further than into the stock valuations of our 5 Tech Titans.  












Faltering Friday – Investors Begin to Factor Risk Back In

ImageHow good is the economy, really?

Barry Ritholtz summed it up nicely yesterday with these key economic points:

• Unemployment RateU-3 unemployment was only 3.5% in February 2020, and it skyrocketed to peak at 14.9% in April — and that likely undercounted full unemployment. It is 10.2% as of July 2020, a big improvement, but far above the recent lows. Not only that, as a reminder, the worst the Unemployment Rate ever got during the Great Financial Crisis was 10% in October 2009.

• GDPReal GDP bottomed in Q4 2008 at -2.16% (annualized); today its -9.49% (annualized); if you prefer to use nominal GDP, that bottomed in Q4 2008 at -1.86% annualized, today it is -10% (-9.986%).

• Non-Farm payroll workers: There were 152.463 million people employed in February 2020; That fell to a low 130.303 million in April; it has since recovered to 139.582 million. There are 12.88 million people who have lost their jobs since the pandemic spread and have still not found new ones since the recession began.

Look back at the GFC: Peak to trough, the total job loss in 2007-10 was 8.7 million. There are 48% more people unemployed right now than at the peak of the GFC.

• Existing Home Sales: The Existing Home Sales (Seasonally Adjusted Annual Rate) were at 5.76 million in January 2020; they bottomed in May 2020 at a (SAAR) of 3.91 million, have since recovered to 4.72 million in June 2020. The

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Falling Thursday – Fed Fails to Firm Up Markets

Comic: Stocks Jump As White House, Fed Stimulus Sparks Rally By ...We got the Fed's mintues yesterday, they were not helpful.

“Members agreed that the ongoing public health crisis would weigh heavily on economic activity, employment and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.” – FOMC

Federal Reserve officials left interest rates unchanged near zero at their July session and continued to buy Treasury and mortgage-backed bonds at a pace of about $120Bn a month.  At a press conference following the meeting, Fed Chair Jerome Powell said the path forward for the economy was “extraordinarily uncertain” and would depend on containing the virus. Results on that front have been mixed, with infections rising in several U.S. states, potentially weakening the recovery.

Altair Insight: Seeing The Way Back (1Q20) - Quarterly Market ReviewOfficials had a long list of worries about the outlook, ranging from new waves of virus outbreak disrupting growth and crimping credit conditions, to waning fiscal support, as well as disruptions to foreign growth from the pandemic. Importantly, “several” said the long-run impact of the pandemic could result in business restructurings that may “slow the growth of the economy’s productive capacity for some time. Uncertainty is quite high. And I think uncertainty matters a lot for players in the economy and consequently for the economy itself,” said Thomas Barkin, president of the Federal Reserve Bank of Richmond.

He also said "The Fed is doing a lot to support the economy right now and we’re committed to continuing that support."  I'm sure there are some (the people you can fool ALL of the time) who will take that as a positiive sign but, as I said in yesterday's Live Trading Webinar, there's simply too many negatives to just focus on the positive in this market.  We're heading into a period of great uncertainty and the best thing we can do right now is get to CASH!!! 

We went over our Long-Term Portfolio Positions and decided which ones will stay and which ones will go and we'll be taking a knife to our other portfolios as well.  We…
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Record-High Wednesday, Again

Up and up we go.

The S&P 500 is up 12% since the end of June and that's nothing compared to the Nasdaq but the Nasdaq is just silly now and so are the other indexes.  Sure money is pouring into the economy and the Dollar is collapsing but will making the rich SO MUCH RICHER really stop the virus that is ravaging our economy?  Of course not.  

In last week's Live Trading Webinar, we shorted the Dow Futures (/YM) at 28,000 (avg) and we're still in that trade a week later as the Dow hasn't done much in the past week – and Apple (AAPL) is in the Dow!  We could be consolidating for a move up or a move down but, as noted in our earnings anlaysis of the Dow components on July 23rd, there's no justification for a move higher – not from an actual earnings perspective anyway.