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