August 4 Post
Hi Again,
Look at the calendar! Historically the market peaks in August. September is the worst month of
the year for the market and most crashes take place in October. Put on your seat belts and get
ready for a ride! Market analysts talk about a “risk on” times and “risk off” times. We get the
best bargains during corrections. That's seemingly the credo for contrarian investing. Nathan
Rothschild, a 19th-century British financier and member of the Rothschild banking family, is
credited with saying that "the time to buy is when there's blood in the streets." This is why I
always advise everyone to have 25% to 50% of your portfolio in cash at all times. Even if you
have a real loss in one place, you can easily recover in the stock market. It is not that easy in the
bond market. For many months, the market astrologer Merriman has been predicting that in
November 2024, the US stock market will hit a 4 year low. Many countries had elections in
2024; and all those markets fell sharply in 2024. I always keep some put options on the
S&P500 (SPY) as hedges. As the market falls, I buy more hedges. Consider what happened to
the volatility index! On 5/11/24, it was at 11.80. On 8/2/24 it ended at 23! If I was smart enough
to buy call options on the VIX on 5/11/24, I could have easily made a 1,000% profit in 53 days!
During the past 5 years, the highest point reached by VIX was 65 (panic at the highest point).
Since 11/28/21, the highest point reached by VIX was around 30. Usually when the VIX is
between 30 and 70, it is a good time to buy stocks. On 8/1/24, the Dow (DJIA) had an intra day
low of 750 points and on 8/2/24, the intra day low was 898. Per CNBC, 8/1 and 8/2 volume
was mainly due to hedge fund purchases and sales. It is going to be an interesting Fall 2024! Be
defensive for the next 4 months.
I love studying stock and Index option tables. I find it very interesting to see what some are
buying and selling. When the covid crisis hit China, we were assured that covid will not get to
the US but it was unrealistic. When covid hit China, Disney was at about $150 and one put
option contract with a strike price of $50 (expiring in one year) was going for $90. I thought the
probability of Disney falling to $50 in one year was less than 1% but like buying a lottery, I
bought some-assuming that I will end up losing everything. In one week, the paper value
doubled and in 3 months when Disney considered opening their parks in China I sold my put
options. What I bought for $90, in 3 months, I sold for $850! That is the magic of options. Last
week I was amazed to find more than 100,000 put option contracts on the S&P 500 (SPY)
below $150 within the next 12 months. I heard that most of these were bought by hedge funds.
What does this mean? On 7/16/24 SPY hit a high of $565. For SPY to get to $150 within one
year, the market has to fall 73% within one year. In my opinion, the probability of that
happening is less than 1%. Per market astrologer Merriman we are long overdue for a 90%
correction. We cannot control what would happen but we can react accordingly. On 7/22/24, I
bought some SPY put options (expiring 3/21/25) with a strike price of $180. The probability of
losing everything was 99%. On 8/2/24, those options had a paper gain of 135% in 11 days!
2
For the past few months, Gundlach has been advising people to move from stocks to bonds
(especially, bond funds). That is a no brainer as interest rates fall, bond prices rise. Over the past
4 years I have gone in and out of bond fund ETFs and I have done very well. I prefer to use the
bond ETF known as “TLT”. iShares 20+ Year Treasury Bond ETF (TLT). Even though I
was very late to the party this time, I purchased some call option on TLT on 8/1/24 and on
8/2/24. On 8/2/24 alone TLT rose by 3%-which is rare for a bond fund. On my TLT call options
purchased on 8/1 and 8/2, I did not expect to make money till September 2024. On 8/1/24, TLT
opened at $95.14. On 8/2/24, TLT closed at $98.28. On 8/1/24, I purchased some TLT call
options with an expiry date of 4/17/25 with a strike price of $105. In other words, expecting
TLT to be above $105 on 4/17/25. Those call options went up by 105% in 2 days! On 8/1/24, I
also purchased some TLT call options expiring 4/17/25 with a strike price of $110-expecting
TLT to be above $110 on 4/17/24. Those were up by 61% in 2 days! Then on 8/2/24, I also
bought some TLT call options with an expiry date of 6/20/25, with a strike price of $110-
expecting TLT to be able $110 by 6/20/25. Those options rose by 12% in 8 hours! I do not
expect TLT to go up in a straight line. We are sure to have “counter trend” moves. Even though
I have been only trading TLT for bonds, now due to the “re steepening” of the yield curve, it is
better to go long on the short end; specifically, the ETF, “IEF”. iShares 7-10 Year Treasury
Bond ETF (IEF) .
On 7/30/24, for our portfolio, I replaced Intel with Nvidia (NVDA). When it goes down in price
I will purchase more and decrease the average cost. For the past 4 months, on a weekly basis, I
was selling “covered call options” (for each 100 stocks owned, selling 1 call option that expire
in 7 days) on Intel. For those 4 months, I got a 7.5% gain per month on selling these Intel call
options. Prior to 8/1/24, their lowest point was $30. The highest point for the past 2 years was
$50. Per company reports given prior to 8/1/24, most experts expected very good results from
Intel. In fact, apart from selling covered calls on Intel, I bought some call options on 7/11/24
and in one day, they were up by 18%. Then came Intel earnings on 8/1/24! It was terrible! Intel
had its worst day since 1974 and fell 33%! All what I earned by selling covered calls got wiped
out. Fortunately, due to the put options I owned on Intel as “hedges”, I recovered 1/3 of my
loss. I should have had more puts as hedges. In the future, when I sell covered calls (probably
not on Intel), I will have more puts as hedges. Even if those hedges go down to zero, those are
tax deductible. Learn and live! Some are comparing Intel to Boeing but most agree that Boeing
is in a better position. If Intel loses the billions it gets from the government, it might declare
bankruptcy.
Jeffrey Gundlach was formerly the head of the $9.3 billion TCW Total Return Bond Fund,
where he finished in the top 2% of all funds invested in intermediate-term bonds for the 10
years that ended prior to his departure. Whenever the Federal Reserve makes a decision on
rates, Gundlach comes up on CNBC. This is what Gundlach stated on 7/31/24:
The stock market could go up now as the Feds signaled a rate cut in September.
Jerome Powell was over-prepared for the meeting.
3
Unemployment rate is going up and the Federal Reserve is keeping close tabs on it.
Expect 3 rate cuts in 2024.
In the second half of 2024, expect to see a lower rate of inflation- “seasonality of
inflation”.
Feds will cut more than what the market expects.
In September 2024, we .will discover that we are in a recession.
People who are losing jobs cannot find other jobs.
Government is hiring more to manipulate labor numbers.
Hi Yield Bonds are very attractive. 8% can be found in safe bonds.
Gundlach likes gold.
On 8/2/24, Citibank announced that we are already in a global recession