Thoughtful Thursday – Jackson Hole Dreams

Image result for fed jackson holeIt's time for the Fed conference.

Central Banksters from around the World will fly to Jackson Hole, Wyoming to congratulate each other on what a great job they are all doing while ignoring protestors who will do their best to point out what a terrible job the Central Banksters have been doing on restoring the actual economy – where 80% of the people are one missed paycheck away from poverty.

According to the latest data from the U.S. Bureau of Economic Analysis, the personal saving rate in the United States is 5.7%. This means that out of every $100 in after-tax income Americans bring in, approximately $5.70 is being saved for things like retirement, emergency expenses, and rainy-day savings.

US Personal Saving Rate Chart

You should be saving between 10% to 15% of your income. Fidelity recommends a minimum of 15%, but keep in mind that this includes any employer matching retirement contributions. So, if your employer contributes say, 4% of your salary to your 401(k), this implies that you should be saving 11% of your income.

Total debt (including mortgages, auto loans and student loans) is expected to surpass the amounts owed at the beginning of the Great Recession by the end of 2016, NerdWallet found, mostly due to mortgages and student loans. Many Americans find it difficult to stick to savings goals and that’s even worse if you have a family.  The amount that a two-parent, two-child family needs just to pay the bills (but not have money left over for savings) ranges from about $50,000 to more than $100,000 depending on where a family lives 

Mortgage debt jumped from $159,020 per household in 2010 to $172,806 in 2016, and debt from auto loans grew from $20,032 in 2010 to $28,535 in 2016.  Nationwide, total household debt (including mortgages, auto loans and student loans) now equals almost $12.4 trillion, up from about $11.7 trillion in 2010. That's adding $200Bn per year in debt accounting for ALL of our Retail Sales growth since the recession.  

Image result for trickle down economics reaganMedian household income has grown
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Which Way Wednesday – Pavlov’s Tax Cut

Image result for pavlov cartoonTrump will cut taxes!  

That's what took the Dow 200 points higher yesterday.  Have we heard that before?  Yes – for almost a year now, that's been driving the markets higher and any time the markets need a boost, they promise us tax cuts and, like well-trained dogs and, like I said in the title of yesterday's Morning Report: "Fools Rush Us Towards the Strong Bounce Lines."  

As we expected, we did hit our strong bounce lines on on the Futures in yesterday's action at Dow 21,800 (21,850), S&P 2,442.50 (2,450), Nasdaq 5,850 (5,870) but missed Russell 1,377.50 (1,372.50) so we shorted the Russell at the 1,370 line and, this morning, we're already up $250 per contract at 1,365.  That's exactly what we said we'd do – wait for the strong bounces and short them as they cross back under.  Now we're waiting to see if the other indexes cross back under or if the RUT comes up to join them and confirms a more bullish rally.  Dow (/YM) 21,850 is my next favorite short. 

Our long position on the Nikkei (/NKD) was good for gains of $500 per contract on the way up and yes, we could have made more money on the Dow or the Nasdaq – but we weren't that confident in the morning that the indexes wouldn't head further down and /NKD seemed like the safer bet.  We have a Live Trading Webinar at 1pm, EST and we'll look for some new opportunities this afternoon.  

We are back long on Coffee, using the /KCH8 (March) contracts.  I was encouraged by finding a bit of support at $130 ($133 in March), though below $130 we will stop out and wait for a better bottom.  Our long premise on coffee is that Global Warming will disrupt production and, right now, Italy is having a terrible grape season due to a drought (go long Italian Wine).  As noted by the Times:

The warming temperatures, shortening of the seasons and unseasonal storms brought on by global climate change are hastening


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Tempting Tuesday – Fools Rush Us Towards the Strong Bounce Lines

We're getting there.

The S&P 500 Futures (/ES) are only at 2,431.50 at 7:49 and yesterday, in our PSW Morning Report, we predicted a weak bounce to 2,430 while the strong bounce line is still 0.5% away at 2,442.50 and, if we don't get over the strong bounce line today, odds are this has just been the pause that refreshes for the bears, who are consolidating above -2.5% line (2,418) for a proper break-down – but we still have faith as those dip-buyers are well-trained, aren't they?

We haven't made any bearish bets yet but we'd love to see 5,850 tested on the Nasdaq, but it's not likely we get that high today.  Nor is 1,377.50 likely on the Russell but the Dow (/YM) is over its strong bounce line at 21,670 and failing that line will be the signal we're looking for to add some shorts to the indexes.  These are the handy charts I made for our Members in yesterday's Live Chat Room:

The S&P Chart was already posted in the Morning Report and let's not give the Dow too much credit as we were looking to confirm a more bearish channel, from 22,000 to 21,450 (-2.5%) but, in reality, the drop was only from 22,100 to 21,600, which is 500 points so our 5% Rule™ says to expect 100-point bounces to 21,700 and 21,800.  The 22,670 line confirms that the Dow is failing within a longer-term, weaker trend we believe is in progress.  The short story is, the Dow has to hit 21,800 before we consider it in proper recovery.  

If you want an upside hedge right away, try the Nikkei (/NKD) which tested a major bottom at 19,300.  Once they cross over 19,400, that line can be used for a bullish bet with tight stops below 19,400 and, of course, the Nikkei loves a strong Dollar (good for exports), and the Dollar is nice and low in its channel at 93.35 so a higher Dollar gives us a greenlight on that bounce play.  

With the Nikkei falling from 20,300, a 5% pullback takes them to 19,285 and the low was actually 19,265, so a bit of an overshoot
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Monday Market Momentum – Halfway to 5%

Well, you can't say I didn't tell you so.

Back on Aug 3rd our PSW Morning Report was titled: "Thursday Market Folly – You Need an AAPL a Day to Maintain Dow 22,000" and we began looking for AT LEAST a 500-point (2.5%) correction in the Dow as well as a 2.5% correction in the other indexes.  My logic was that, without some market-moving stock like Apple (AAPL) pushing up every day, at this point we'd have a tendency to drift lower.  We went over the monetary physics of the problem in this weekend's PSW August Portfolio Review as well.

As we approach year 4 (11/26) for our paired Long-Term/Short-Term Porfolios, we are well on track to making 40% compounded gains off our original $600,000 investment, which should take us to $2.3M but next year – to make another 40%, we need $922,000.  This is not a sustainable model because the economy isn't growing at a 40% pace yet the broad market is not that far behind us, having turned S&P 666 in 2009 to S&P 2,450 in 2017 – up 267% in 8 years which is a straight average of 33.37% a year.

If the US market cap is now $85Tn, then a 20% gain requires $17Tn – that is just shy of the US's entire $18.5Tn GDP that needs to go into the stock market, just to feed a significant slowdown in growth.  The market has become too big to succeed and that is why it's a bubble – we simply don't have the economy to feed such a beast!  

The net effect is that every market misstep is now magnified and we're already seeing that as individual earnings reports are routinely sending companies down 10-25% if they displease.  That's why I said in that 8/3 Report, to stay away from Tesla (TSLA), who are back below $350 and to buy Copper (/HG) instead, along with "Graphite, Nickel, Aluminum, Lithium, Cobalt and Manganese – that's what electric cars are made of."  As you can see, copper has done well this month, adding 0.12 at $250 per penny, per contract and that's good for a gain of $3,000 per contract playing the better hedge of…
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PSW August Portfolio Review

$2 MILLION Dollars.  

Well, actually it's $1,960,061 but that's still up 326% from our $600,000 start in our paired Long-Term and Short-Term Portfolios since their inception on 11/26/13.  We're "only' up $440,607 (29%) in 13 months (see our July, 2016 portfolio review) as, even at that time, I wondered "Are We Too Bullish".  

The S&P was at 2,120 last July and now at 2,425 so up 14% which means we're outperforming the S&P by 100% so I certainly don't think we've become too bearish, we've simply tapered our 40%+ annual growth of the first 3 years in favor of spening more money on hedges – to lock in these ridiculous gains.  

And they are ridiculous.  As I noted on Friday, there isn't enough money in the World, nor are the Central Banks printing money fast enough to pay everyone 40% annual gains.  In fact, if you start with $600,000 and make 40% a year for just 10 years, that's $17.3 MILLION!  So, I will ask you again, do you think it's likely or unlikely we continue along this path?

No, that would be silly, right?  No matter how confident we are in our own abilities to make money, we have to recognize that this is a unique market situation that is inherently unsustainable.  It's a lot like catching a really good wave while you are surfing – we're good surfers and we will take full advantage of it but you can't fool yourself into betting the next wave will be even bigger, and the one after that and the one after that – it's simply not how the universe works.

Of course, we know what's causing these giant wavers – Central Bank Policies – but then we have to consider if those are sustainable and, as you can see from the rate chart – the amount of money they need to pump into the system begins to grow exponentially to susstain these asset gains.  We started with $600,000 but the S&P 500 is now at about $21Tn alone so it will cost SOMEONE $8Tn to add 40% to it.  The entire GDP of the United States is $18.5Tn and is growing at MAYBE 3%, which is $242Bn – far shy of…
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TGIF – Market Ends Week on a Rough Note

Wheeee – this is fun!  

As you can see from JackDamn's index chart, the Russell Small Caps have now given up ALL of their gains for the year and, even a little bit lower and we won't be looking at a small correction anymore.  Generally, we like to "short the laggard" – or the index that has fallen the least but the Nasdaq is a strange animal and all of it's outperforming gains are due to Apple (AAPL) - and we think AAPL deserves to be at $160, so we don't see it as particularly overpriced compared to the Dow or S&P, though there are certain components in the Nasdaq (AMZN, NFLX, TSLA) that have ridiculous values and those may correct and drag the index down with them.  

As you are well aware, we've been discussing options hedges and futures shorts all month so I hope you enjoyed yesteray's dip as much as we did.  Our two key shorts in our portfolios are the Ultra-Short Russell ETF (TZA) and the Ultra-Short Nasdaq ETF (SQQQ) and the Nasdaq is 4.5% off the top and the Russell is 7% off.  By the way, we have the SQQQ hedges, not because we thought the Nasdaq would drop more but because our biggest long position is AAPL – so it gave us the best protection to lock in our gains.  

In fact, we just did a review of our Options Opportunity Portfolio, which is up an impressive 211% as of our two-year anniversary (8/8/15 was our start date with $100,000) and it is, by far, the best-performing portfolio in the Seeking Alpha Marketplace.  That portfolio has the following AAPL position that, if successful will, by itself, make us $180,000 by Jan 2019.  

Our net entry on the trade was a $5,600 credit, mostly in June and, though the short puts obligate us to buy 2,000 shares of AAPL for $130 ($260,000), which would use $130,000 of ordinary margin, AAPL is already far enough out of the money where the net margin requirement in the short puts is just $20,000 – so it's a non-issue in our now $311,000 portfolio.  


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Faltering Thursday – CEOs Quit Trump, Markets Start Noticing the Mess

Wow, that was a fun day!  

After bragging about how easy it would be to replace departing CEOs, Trump ended up disbanding what was left of his Business Council as we finally found a group of people in America with the backbone to stand up to the President.  From our point of view, we don't care what news brought the market down, as long as the market goes down and, once again, our index shorts were big winners.  In fact, we made almost $1,000 for our Members in just over an hour during our Live Trading Webinar alone (you're welcome!). 

Our 5:49am call to short the Futures was linked pre-market in yesterday morning's PSW Report and now would be a good time to review the calls after the fact, so we can get an idea of how our 5% Rule™ operates in the wild:

The Dow had a 400-point run (1.8%) to 22,050 so 80-points back is 21,970 and then all the way back to 21,890 but I'm only expecting a weak retrace for now.  

As you can see, we pretty much nailed 21,970 (weak retrace).  90-pont drop from 22,000 (our shorting line) was good for gains of $450 per contract.

/ES had a 30-point run to 2,470 and that's 6-points back to 2,463 and then 2,457 if it's so inclined to fill that gap.  

Again we have the weak retrace and a 10-point dop on the S&P Futures (/ES) is good for gains of $500/contract.  What we're looking for…
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White Power Wednesday – Trump Says Some Nationalists are “Very Fine People”

I can't believe the markets are up again.  

This country is running headlong into full-scale riots and the market could not be more complacent about it.  Once again we are jacked up in the Futures and I already put out a note to our Members with new shorting lines and I have to run to the Nasdaq this morning for an interview so I'm just going to post a link HERE.  

That's right, we're very busy in the mornings at PSW and that's because being a good investor is a JOB, not a hobby and it requires a surprising amount of work if you want to get it right.  Yesterday morning we also shorted the low-volume move up in the Futures and my call in the Morning Report was:

Meanwhile, talk of trade war is strengthening the Dollar, which may even break back over 94 today and that unintended consequence of sabre-rattling is not good for the markets so we took advantage this morning and put in those short orders on the Futures in our Live Member Chat Room at Dow (/YM) 22,000, S&P (/ES) 2,470, Nasdaq (/NQ) 5,925 and Russell (/TF) 1,400.  As usual, we wait for two of them to cross under than then short one of the laggards with VERY TIGHT STOPS – because this market be CRAZY!  

The Dollar hit 94.04 and is holding 93.90 at the moment, consolidating for a move higher (long /DX) and we got some nice drops on our indexs but, as we thought they were shallow:  Dow fell 50 points to gain $250 per contract, S&P fell 10 points to gain $500 per contract, Nasdaq fell 25 points to gain $500 per contract and Russell fell 20 points to gain $2,000 per contract, which is good because, as I said to our Members in the Live Chat Room at 9:37:

I've got 5 short /TF, always my favorite.  1,395.30 is my avg.  Other than that, just seeing how things shake out.  

Image result for boring investmentsSee, this is not complicated:
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Trade War Tuesday – Trump “Probes” China, A Welcome Distraction

Related image1, 2, 3, 4 – I declare a trade war!  

Those of you who are students of economic history know that nothing is more damaging to an economy than a trade war and those of you who don't know enough history to believe there are "alternate facts" aren't worth trying to convince, so I won't waste time here.  Our President, of course, is not one to let facts get in the way of a rash decision and Trump is proposing special taxes on Chinese imports, starting with aluminum but actually, this is a sneaky way to stop the flow of cheap solar cells into the US to boost Trump's beloved coal industry (and the Koch Brothers).  

It is not unusual for the U.S. to punish businesses it deems to be “cheating” on global trade rules, and one should not be too quick to judge any specific punitive measure taken. But the fear is that we are now on a slippery slope toward a trade war, as China is certain to respond by taxing U.S. sales of goods in China.

All of this trade talk ignores the basic fact that China is our factory floor, the way the midwestern cities once were in the mid-20th century.  They were dirty and polluted and the kind of jobs people had were not the kind of jobs people actually wanted, which is why the people in the Northeast were thrilled to export those jobs and the pollution out west.  As the US developed and as World Trade became more efficient, we exported the jobs and factories all the way to Asia and China became the new Japan (who were our factory in the 70s) and now China is pushing those jobs and factories to Africa because, in the end – NOBODY ACTUALLY WANTS THEM!

Image result for iphone assembly lineAssembling IPhones is not a dream job but those are on the high end of of what we have exported overseas.  I'm going to focus on the IPhone so I can explain to you what an idiot our President is, without making it too complex.  

 Though the IPhone is an American product, it's assembled in China and those
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Monday Morning Market Movement – More of the Same

If it's Monday, the Futures must be higher.

It's very easy to get the markets going in thin weekend trading and usually we peak out of Meaningless Mondays or Testy Tuesdays and then we resume our normal shorting activities.  Last Tuesday, we called for shorting the S&P Futures (/ES) at the 2,480 line and we caught a ride down to 2,435 for 45 points at $50 per point per contact – a profit of $2,250 per contract (you're welcome) and that was a very poor 2nd to our Russell Futures short (/TF), which fell from 1,430 all the way to 1,370, which was good for a profit of $6,000 per contract.

It's really not hard to follow these trades, we laid out the levels and the details in Tuesday Morning's PSW Report and delivered it to the inbox of our subscribers by 8:35 on Tuesday morning, an hour before the market opened and that day's $3 investment in our newletter was paid back 2,000 times on the Russell alone.  Subscribe here if you'd like to catch the next 2,000x winner!  

Rembember – I can only tell you what the market is likely to do and how to make money playing it, that is the extent of my powers – the rest is up to you…

We also put up an options spread on SPY for those who aren't able to trade the Futures (though it's really not hard, we teach Futures trading to our Members in our Live Weekly Webinars) and that trade was:

We've been talking about hedges and a good way to hedge the S&P, other than simply shorting /ESFutures with tight stops above, is a bear put spread on SPY options, which we can accomplish with the following:

  • Buy 20 SPY Sept $247 puts for $2.50 ($5,000) 


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