April 3 Post

Hi again,

March was a rocky month for the market but our portfolio gained (net) 7.24% in

March. Over the past 3 months, our portfolio had a net gain of over 28%. Look at

our scorecard.

Did you hear about the Silicon Valley Bank failure? If not, you were living under a

rock. I always have a small percentage of my portfolio in options; some as a hedge

and some to take advantage of a special situation that might arise in the future. I

never get in to short term options. Prior to March 2023, all Wall Street “pundits”

were saying that it is safe to invest in bank stocks. I did not expect bank failures but

I expected heavy loan losses for regional banks. On 4/21/22 I bought 2 put option

contracts on the Regional Bank ETF known as KRE and then again on 10/18/22, I

bought 2 more put options on KRE to short sell Regional Banks through KRE.

These options expire in 2024 and 2025. I did not expect to see loan losses till the

end of 2023; the latest. In fact, a week prior to the Silicon Valley Bank failure, I had

a paper loss of about 75% on my “short sell” put options. I expected that. Then

came the Silicon Valley Bank failure and KRE dropped from $60 to $42 in about 10

days! On Friday, 3/10/23, I had an average “paper gain” of about 50% but I did not

sell any of my put options. Next Monday, 3/13/23, panic grew, and I sold one of my

put options with a gain of 150%! I still hold the other 3 options. The gain I got from

the option I sold is enough to cover the cost of all 4 options. As CNBC Jim Cramer

likes to say “ I am now playing with the casino’s money”. On the other hand, I do

not believe that we are done with the “after-shocks” but I do not expect to see that

for many months/years. I also have some put options on the S&P500 (SPY) at all

times as a hedge against a big correction or crash. On 3/9/23 (with an expiry date of

Sept 2023) was at $2.15 (or $215 per contract of 100 shares). On 3/13/23, it was at

$4.30 – 100% gain in 4 days! Also, this crisis is going to lead to tightening of credit

at regional banks. That is going to make the recession worse. Recently we had

massive layoffs of highly paid white-collar workers who will now get about $450

per week in unemployment benefits. Also, regional banks losing their deposits to

the big banks will worsen the upcoming recession as most small businesses (who

employ more than 80% of the US labor force) depend on regional banks for their

banking needs. On 3/24/23, CNBC reported that we had the “biggest rush to cash”

since the 2020 covid crisis as people moved $145 Billion to cash and other assets

such as gold from the time Silicon Valley Bank failed. Federal Reserve also

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reported that big bank deposits increased by $300 Billion and regional bank

deposits fell by $300 Billion since the Silicon Valley Bank failure. Decades ago, it

was very beneficial to get in to pre IPO stocks as almost all IPOs had tremendous

gains when they went public. Then when some companies went public, they got

‘hair cuts” so they remained private with unrealistic prices. On 3/16/23, Jim Cramer

reported on CNBC that Silicon Valley Bank was (1) the biggest inflation creator (2)

allowing the private equity firms in Silicon Valley borrow against their over valued

stocks and buy real estate which were already bloated. On 3/15/23, the “Big Short”

movie guy (excellent movie about the 2007/2008 banking crisis) stated “Don’t’ be

a hero”; meaning do not buy bank stocks at this time. On 3/13/23, CNBC

mentioned that 25% or $45 Billion of Silicon Valley Bank deposits were withdrawn

over a 48 hour period! Due to this crisis, I watched the movie “Big Short” again.

In that movie they showed 2 guys who got information that we are headed for a

banking crisis so they were able to turn $100,000 in to $30 Million in “shorts”! In

that movie, those 2 guys stated, “ People think positive so they under estimate the

negative things that could happen” So true! According to Wall Street experts, all

depositors, borrowers and mangers of the Silicon Valley Bank were in high school

or college during the 2007/2008 banking crisis. As I mentioned in my newsletter

many months ago, when bitcoin was at $60,000, “young people” had 75% of their

assets in Bitcoins and Cryptos! Then Bitcoin fell to $15,000! Live and learn!

Since 1993, I have been working in Credit Risk. Around 2006 I had a friend who

had a problem managing his personal finances and on a monthly basis he had to

borrow from family to make ends meet. He always paid his bills on time to keep his

FICO score at 800. He told me that with a perfect FICO score, with no income and

with no downpayment, he can buy a house. Not only that! His real estate agent

made a deal with the seller and “others” to inflate the sale price of the house by

$50,000 and split it between all parties! I was confused as that goes against all

principles of credit. The argument was that housing prices never go down. Simply

absurd! I did not expect a bankimg crisis and a severe recession but I should have

shorted bank stocks etc.! There will be plenty of opportunities in the future. As we

all know “history repeats itself”.

On 3/14/23, Josh Brown (“Market Guru”) stated that the next crisis will be in

commercial real estate. Most people work to work remotely. We have an over

abundance of commercial real estate. Some are getting converted to residential real

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estate but with the coming recession and bloated prices, that shoe too will drop

soon.

Stay tuned!

Have a great month!

Fernando

March 7 Post

Hi Again,

During February 2023, S&P500 declined by 2.6% and the Dow declined by 4.2%;

however, our portfolio gained by 0.79%.

The stock market has been range bound for more than a year. The Federal Reserve

keeps saying that they will maintain higher interest rates “higher for longer”; but

bond market gurus believe that the Feds will pivot in 2023 and lower rates by year

end. It does not matter what happens, we should look for opportunities and pounce

on them when we see them. On 2/21/23, Josh Brown stated that following computer

driven algorithms is very risky as those computers are programmed to follow the

trends of the past few days. I agree with that statement. Recently the bond market

has been acting prudently and increasing rates in line with the guidelines given be

the Federal Reserve. Interest rates as well as inflation is rising in the US as well as

in Europe – Look at US Treasuries as well German bonds. No one know if this

trend will continue. To take advantage of interest rate changes, I trade the ETF

known as TLT ( iShares 20+ Year Treasury Bond ETF  ). I have made some good

money by “buying put options” to short-sell TLT. If you look at the 6 month chart

of TLT, you will notice a triple top (12/7/22, 1/18/23 and 2/2/23) which could lead

to lower prices in the future. On 12/7/22, TLT was at $109.47 and on 3/2/23 it was

at $99.39.

Most people recognize Jamie Diamon as the most respected bank CEO (Chase).

CEO Jamie Dimon said Thursday that containing inflation remains a work in

progress for the Federal Reserve, while noting the U.S. economy continues to show

signs of strength. “I have all the respect for [Fed Chair Jerome] Powell, but the fact

is we lost a little bit of control of inflation,” Dimon said in an interview with

CNBC’s Jim Cramer during the “Halftime Report.” It’s the first of a two-part

interview with Cramer, with the second installment airing later Thursday on “Mad

Money.” Dimon’s comments came one day after the Fed released the minutes from

its Jan. 31-Feb.1 meeting, which showed members remain resolved to fight

persistent inflation. “Participants noted that inflation data received over the past

three months showed a welcome reduction in the monthly pace of price increases

but stressed that substantially more evidence of progress across a broader range of

prices would be required to be confident that inflation was on a sustained downward

path,” the minutes said. Dimon himself said he expects that interest rates could

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“possibly” remain higher for longer, as it may take the central bank “a while” to get

to its goal of 2% inflation. “The U.S. economy right now is doing quite well.

Consumers have a lot of money. They’re spending it. Jobs are plentiful,” Dimon

said. “That’s today. Out in front of us, there’s some scary stuff. You and I know

there’s always uncertainty. That’s a normal thing.” Those comments contrast with

Dimon’s previous remarks in October. At that time, he said the U.S. economy will

likely fall into a recession in six to nine months. In December, he said higher

inflation was eroding consumer wealth, which would lead into a recession this year.

We can always learn from our past mistakes or “missed opportunities”. In the

future, we can make use of those lessons to better ourselves and make money. All

the best Wall Street Wizards will testify that it is a never-ending process. We must

always keep 25% to 50% of our portfolio in cash to make use of such opportunities.

The biggest missed opportunity for me was not to short sell the over-valued stocks

that had a big debt to equity ratio while and incurring losses year after year. When

the Feds started increasing interest rates, these companies had no choice but

increase their interest payments to survive. With a potential recession, having a

detrimental impact on their revenue, it was a double whammy. Take Carnival

cruises (CCL) for example, it was at $19 on 4/11/22 and on 3/2/23, it is at $10.70.

DocuSign (DOCU) was at $310 on 8/29/21 and on 3/2/23, it is at $61.03. At the

money put option is around $1 ($100=1 contract). Let us assume I bought $1,000

worth at the money puts on DOCU on 8/29/21, today my puts will be worth

$250,000!

In my last newsletter, I mentioned that I gained a lot by investing/trading in to

“good” stocks that fell about 50%- for example, Tesla, AMD, Netflix,

Facebook/Meta. At this time I am closely watching Disney (DIS). On my personal

account, I bought DIS when it went down to $85. On 2/2/23, DIS was at $112. On

3/1/23, it fell to $98. I keep experimenting with strategies. At times, I buy 1 share

and when it goes down another 10%, I buy 2 more shares and keep doing that till

the price hits a temporary bottom. This works! Market gurus say that when the

market or a stock, bottoms, no one will ring a bell; but we can create our own bells

in this manner.

Have a great month!

Fernando

February 8 Post

Hi Again,

Did you see our scorecard? In January 2023, we had a gain of 20.35% ! Almost a 25% net gain since 11/1/22! We have been in a bear market for about 18 months. Nine months ago, when Netflix crashed, all the Wall Street pundits advised us to keep away from Netflix but I purchased Netflix for our portfolio and now in 9 months, Netflix is up by 85.89%! On my personal account, over the past few months I lost some money on my bond/stock “shorts” (put options) but that was more than offset by my gains on my stocks. As I have been advising, when a “good” stock “crashes”( about 50%), it is a good time to start buying (“nibbling”) and as those go downward, you keep buying more to make use of dollar cost averaging. What stocks belong to this category? Meta/FaceBook, AMD, Netflix, Tesla qualify.  On 11/3/22, Meta/Facebook bottomed but I start buying it on my personal account on 10/27/22, and on 2/4/23, I have a paper gain of 90% in 109 days! All the Wall Street experts pessimistic on Meta last Fall! I bought some Nividia on 10/2/22 and now my gain is 80%. NVDA ended at $211 on 2/3/23. NVDA was at $315 14 months ago. On my personal account, for the first time I bought TESLA on 1//3/23 and as of 2/3/23; in 1 month, I have a gain of 79%!

I am a contrarian. The US dollar (USD) has been going down since 10/9/22 (US dollar ETF: UUP) and all experts say that the USD will continue to decline. I disagree. This is a good time to bet that the dollar will rally soon. On 2/3/23, I bought some CALL options on the UUP (expiring 1/19/24 with a strike price of $30) for a price of $60 per contract. 1 contract = 100 stocks. On 10/9/22, UUP was at $30. The US dollar has gone down excessively against some currencies. If Feds keep raising rates, the USD will go up. When Democrats are in the White House, USD gets stronger; and the opposite happens with Republicans in the White House.

At most times, markets act irrationally but that create long term opportunities. Our task is to take advantage of those opportunities not seen by most. One of the most famous stock/bond market cliches is “don’t fight the federal reserve”. But the bond market has a cliché of its own- “Feds give the signal when they will raise rates and the bond market gives the signal when to lower rates”. When an economic expansion is needed, the Federal Reserve lower rates. Then due to lower mortgage rates, there is a boom in housing and that is followed by a boom in durable goods etc. When the Federal Reserve raise rates, they expect the opposite. However, as I have been stating in previous editions, as the Feds increase rates, “bond kings” have been lowering the yields; and mortgages are connected to these bond yields. Finally, what I have been saying can be seen in the economy. On 1/11/23, CNBC reported that in December 2022, mortgage demand surged as home owners took advantage of lower mortgage rates (due to lower bond yields).  The average rate for a 30 year fixed mortgage decreased during the first week of January to 6.42% from 6.58%. If the Federal Reserve listen to Professor Siegel and the “bond kings” and lower rates, we are not going to keep inflation under control for long. Most probably the Federal Reserve will listen to those experts and create a 1970s style economy. Take a look at the ETF “ITB” which tracks home builders; it has been rising since June 2022. Even though many pundits talk as if inflation is headed towards the 2% desired by the Feds, there are many signs to show that inflation will rise again soon. A few months ago, as the world expected a recession in the US and Europe, oil prices went down. People took that as an indication that inflation is going to go down. What happened since then? Not only oil prices went up in the commodity markets, oil prices even went up at the pump! Not only oil, most commodities and commodity stocks rallied. Europe was expected to have a severe recession in 2023, but now the IMF states that only UK will have negative GDP growth in 2023. China is supposed to open up soon which will lead to more inflation. Why is the Federal Reserve dumping more than $95 Billion from their bloated $8 Trillion balance sheet?  Per bond manager, Nancy Davis, the amount Feds increased (balance sheet) exceeded the amount they had done for the prior 9 years! As CNBC’s senior economics reporter, Steve Liesman reports on all aspects of the economy, including the Federal Reserve and major economic indicators. Steve has a nice example to show why the Feds do not want expedite the process of reducing the balance sheet even as the Bond gurus lower the yield; Steve compares the Feds balance sheet to Godzilla in a cage and as long as Godzilla is in the cage, everyone is safe but the Feds have no idea what might happen if that Godzilla gets out of the cage! Excellent example! No guts, no glory! Prior to 2/3/23, even Jim Cramer was saying that the Feds should reverse course as inflation is coming down but 2/3/23 changed all that! The US government announced a “blowout job report”. Non-farm payroll was expected to go up by 187,000 but it went up by 517,000. Jim Cramer stated, “ People who thought that the Feds should think about cutting rates are crazy! Rates need to go higher until the labor market slows down”!

There is another choice; as the Fed Chair Powell has been suggesting, we could open our doors to new immigrants and that will help but the Republican Party and Fox News will not allow that to happen. Some say that this is not like the 1970s. In some ways, it is not but inflation is a big threat. Have you heard of the Phillips Curve? What Is the Phillips Curve? The Phillips curve is an economic theory that inflation and unemployment have a stable and inverse relationship. Developed by William Phillips, it claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. In economics, “full employment” is not when no one is unemployed. Full employment is the lowest unemployment rate that we could have with very limited inflation. In the 1970s, it was about 5%-6%. Then the US economy got very efficient; and we had an unemployment rate under 4% with no inflation. Due to the aging of the US labor force, economists state that we need to open up to more immigrants to have an annual growth rate of  5%. If not, the Feds will have to raise rates to destroy inflation.

Mohamed Aly El-Erian is an Egyptian-American economist and businessman. He is President of Queens' College, Cambridge, and chief economic adviser at Allianz, the corporate parent of PIMCO where he was CEO and co-chief investment officer. On 1/10/23, Mohamed stated “ We need to get out of these distorted markets (stocks and bonds)”. I will not go that far. We need to watch for trading and investment opportunities.

The bond market and most bond gurus expect interest rates to decline during the latter half of 2023 but I was shocked to hear that the “bond king” Gundlach predict that interest rates will go higher during the latter half of 2023. The US yield curve is inverted (short term ones have a higher yield than the long-term ones) and for the first time in history, the Global Yield Curve is inverted. For most pundits, this is an indication that we are headed towards a recession.  I am not too sure. Even if we have a recession, it could be a mild one. According to Gundlach, most of the selling during the latter part of 2023 (bonds and stocks) was due to tax selling and as expected it all came back in early 2023.

For the past 12 months, all Wall Street experts were saying that consumers have a lot of money so banks will not have trouble in the future. At that time, I was wondering if the people with big cash balances were different from the people who were carrying most of the debt. When markets go down, that can have a major impact even on the wealthy. Jim Cramer was saying that in 2022, the Feds had to provide extra security to the officers of the Federal Reserve due to the death threats they were getting from the public. Anyway, there are so many unrealistic conspiracy theories about the Federal Reserve on social media.  Suze Orman, a former vice-president of investments and Prudential-Bache, heads her own financial planning firm, is a columnist for Self magazine. Recently, on CNBC “Fast Money”, Suze was saying that most people in the US are having major financial problems -mainly with debt. With the crazy stock market going up for years and with all the cash provided by the Federal Reserve and stimulus checks ($5 Trillion), people were buying expensive gas-guzzling cars on debt. We are sure to see bad debt losses for many banks and companies in the future. Did you think the rich would be spared? When all bank experts believed that even if all major banks get in to trouble, Goldman Sachs (that cater to the rich), would be spared. Then on 1/17/23, Goldman Sachs reported big loan losses! Profits dropped 69% in one year!

Wall Street gurus like Jim Cramer try to predict the cause of the next crash as crashes happen only when the unexpected happen. Jim Cramer has been saying that when China (PRC) invades Taiwan, we will see the next market crash. Now that the Republicans have a slim margin in the US House, they are threatening to default on the US Debt if the Biden Administration does not agree to severe cuts in Social Security and Medicare. How about tax increases for the rich (those earning over $400K per year as Biden suggested)? For 60+ years it was considered to be suicidal to talk about social security reductions. Trump gave a huge tax cut for companies and stated that it will be used for economic expansion and hiring but years later even Trump agreed that 99% of that went for stock buybacks. CEO pay packages are dependent on stock performance so this is no surprise. On 2/6/23, Biden proposed quadrupling of taxes on stock buybacks. Republican party is complaining about the budget deficit and the debt level. Since World War 2, one and only time we had a budget surplus was when Bill Clinton was President; but the process was started by Herbert W Bush. He went back on his word (“Read my lips”) for the sake of the country.  The US budget deficit for 2022 was $85 Billion and it was $21 Billion for 2021. Just from 1/1/22 to 6/30/22, companies spent $501 Billion (half a trillion) in buybacks!  In 2021, $880 Billion was spent on stock buybacks! These stock buybacks do almost nothing good for the economy. This is just “financial engineering”. There should be a 100% to 1,000% tax on stock buybacks. Apple alone buybacks about $100 billion in stocks each year.

We could have fireworks in the markets in 2023. That is good. Just keep an eye out for opportunities. “Fish in troubled waters!”

Have a great month!

Fernando

January 2 Post

Happy New Year! Welcome to 2023!

We have been in a bear market for more than 1 year. For some stocks, it was even

longer. The S&P 500 hit its last all-time high of 4,760.18 on 12/26/21. On 10/2/22,

we had the last bottom of S&P 500 at 3,639.66- 23.5% decline in about 10 months!

NASDAQ suffered the most. On 11/14/21, NASDAQ hit a high of 16,057 and on

10/9/22, it was at 10,321-35.7% decline in about 13 months! My strategy is to start

“nibbling” (buying in small quantities) of quality stocks that fell sharply. Then keep

buying as it falls and then wait for another 5 years or so to reap the rewards. Also in

this market, we have to differentiate between a stock that seems like a good bargain

to other great bargains that are available. I do not believe that stocks like Apple and

Microsoft have come down enough to make them great bargains; and it is possible

that we will never see that with Apple or Microsoft. At times, we have to wait many

years to see good results. Boeing is a very good example. Most shrewd money

managers like Jim Cramer gave up on Boeing and sold their shares. Currently it is

at $190 with a 114% gain on our portfolio. Maybe in 2 to 3 years it will go back to

its all time high of $400. Netflix is a good example of a “great bargain”. Last time it

hit an all time high was on 10/24/21 at $690. On 4/24/22, it fell to $190 and many

wall street pundits said that they might even go insolvent. On 4/24/22, we made our

initial purchase and as of 12/31/22, we have a gain of 54%-in about 8 months.

During December 2022, we added more to our Tesla and Intel stocks; and we are

watching Meta/Facebook closely to add more in the future. Our new purchases

would show on the February 2023 scorecard. We bought 38 more shares of Tesla on

12/27/22 at a price of $109 per share. Now we have 50 shares of TSLA and if

TSLA falls below $80 per share, we will buy another 50 shares. “dollar cost

averaging”! As I have stated in previous newsletters, Musk is one of the most

intelligent humans on Earth but there is a difference between intelligence and

wisdom. Musk has a habit of shooting himself in the foot. As a wall street expert

stated, now with Twitter, he has a blowhorn to make erratic statements. With the

70% drop in the price of TSLA, Musk is no longer the richest man on Earth. TSLA

had the worst year in 2022! Musk way overpaid for Twitter and for what? So he can

get Trump to join Twitter? Not only TSLA investors were worried that Musk no

longer had the time to take care of TSLA after the purchase of Twitter, Musk had to

sell some of his TSLA stocks for that purchase bringing down the price of TSLA.

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Pride comes before a fall? Musk used a leveraged buyout strategy to buy Twitter

for $44 Billion; a third of it came from his bank borrowings! Let us hope that TSLA

will decline sharply in 2023, giving us a chance to lower our average cost. When

you adjust the price of TSLA for all the stock splits it had over the past few years,

TSLA was at $15.43 on 9/30/19 and $28.50 on 3/16/20. Imagine TSLA going down

to $15! Musk can go from the richest man to the poorest man! Many billionaires

have gone insolvent, many billionaires have ended in prison and many super

brilliant people have gone “crazy” in the end. Remember the Hunt Brothers who

cornered the silver market? Remember Leona Helmsley? Remember Howard

Hughes? I do not know if the name Tesla came from the name of the scientist

Nikola Tesla. Nikola Tesla was a Serbian-American inventor, electrical engineer,

mechanical engineer, and futurist best known for his contributions to the design of

the modern alternating current electricity supply system. Nikola Tesla got so crazy

that he had a love relationship with a pigeon. Tesla cars are being sold in many

countries but billions of humans use Twitter. Musk has talked about his asperger’s

syndrome and such people are known not to have compassion for other humans.

Soon after buying Twitter, Musk not only fired 50% of Twitter employees, he

stopped any of them from working from home. Also, he asked all his employees to

work very long hours. Per BBC World News, Musk put in “cots” at Twitter so his

employees could work 24/7! So many employees walked out that on one Thursday,

Twitter had to close till the following Monday. In more than 140 countries, for

“world news”, this was announced giving the impression that Musk is a monster

and one of the worst bosses of this century. On 12/8/22, per Bloomberg, Tesla is

considering margin loans to reduce its debt load. Interest paid on debt for one year

could exceed $1.2 Billion-more than Tesla’s 2021 earnings!

Now for our Intel purchase. From the chart for INTC(Intel), I can see that it made a

double bottom recently. It was $25.20 on 10/10/22 and $25.54 on 12/28/22. Now

we hold 50 shares of INTC at an average cost of $30.53. If INTC drop below $15, I

will buy another 50 shares for our portfolio. Semiconductors are the “steel” of this

century. Currently due to excess inventories, lower demand and so on, we have got

a wonderful opportunity to buy in to these stocks. The Semiconductor ETF, SMH

hit a low of $173 on 10/14/22. Previous high was at $301 on 11/8/21! My favorite is

AMD-which is on our portfolio. The best in the world is Taiwan Semiconductor

(TSM) but it is dangerous as most people expect China (PRC) to invade Taiwan

soon. TSM is down by 50% so it looks attractive.

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Where do we go from here?

David Alan Tepper (born September 11, 1957) is an American billionaire hedge

fund manager. He is the owner of the Carolina Panthers of the National Football

League (NFL) and Charlotte FC in Major League Soccer (MLS). Tepper is the

founder and president of Appaloosa Management, a global hedge fund based

in Miami Beach, Florida. He earned a bachelor's degree in economics from

the University of Pittsburgh in 1978, and an MBA from Carnegie Mellon

University in 1982. In 2013, he donated his largest gift of $67 million to Carnegie

Mellon, whose Tepper School of Business is named after him. For the 2012 tax

year, Institutional Investor's Alpha ranked Tepper's $2.2 billion paycheck as the

world's highest for a hedge fund manager.[2] He earned the third position

on Forbes ''The Highest-Earning Hedge Fund Managers 2018'' with an annual

earnings of $1.5 billion.[3] A 2010 profile in New York described him as the object

of "a certain amount of hero worship inside the industry," with one investor calling

him "a golden god."[4] Tepper revealed plans to eventually convert this hedge fund

into a family office (Wikipedia)

It is difficult to find a single “wall street guru” who does not “worship/respect”

David Tepper. On 12/22/22, per CNBC, David Tepper said that he did not anything

good on the long side in the stock market and he was considering getting in to

shorts. However, a note of caution, as Josh Brown (whom I respect) stated, when

David Tepper changes his mind and reverses his decision, he is not going to let

others know about it. On the opposite side, we have professor Siegel from Wharton

School of business. Jeremy James Siegel is the Russell E. Palmer Professor of

Finance at the Wharton School of the University of Pennsylvania in Philadelphia,

Pennsylvania. Siegel comments extensively on the economy and financial

markets.(Wikipedia) . Professor makes several valid arguments to be bullish.

Number one reason is that there are so many investors who are bearish right now

and taking a contrarian view, could be prudent at this point. However, as Siegel

wants done, if the Federal Reserve pivots that could lead to 2 big problems. First of

all, the Federal Reserve will lose more credibility; and also, before long we will

have a worse problem with inflation; and we will have a 1970s style economy

where the Feds kept pivoting prematurely and creating a huge inflation problem for

decades. Per Jim Cramer on 12/22/22, not only the US Federal Reserve Bank but

most central banks in the world, including Europe and Japan (surprising most

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people) are determined to keep raising rates and decrease their bloated balance

sheets.

As I have stated in the past, I am confused why the Federal Reserve is only

unloading $95 billion per quarter in the bond market to decrease their balance sheet.

While the Feds have been raising rates and unloading items from their balance

sheet, in the bond market, the yields have been going lower and bonds have been

going higher! Let us take a look at the ETF known as TLT ( iShares 20+ Year

Treasury Bond ETF (TLT)), From 11/7/22 to 12/7/22 (in one month), TLT rose by

17%! Unlike stocks, a 17% increase in bonds is extremely unusual. I am not the

only one who is frustrated and confused. At CNBC, they have a team of economists

whose job is to monitor the Federal Reserve Bank and all worldwide central banks

24 hours per day. This team is headed by Steve Leisman. On 12/14/22, extremely

frustrated Steve Leisman (on CNBC) stated, “ I am having an intellectual crisis. As

Feds are keen on increasing rates, bond market keeps lowering rates which does not

make sense and it is like the bond market is giving its middle finger to the Feds”!

There are few people who manage trillions of dollars in bonds and they believe that

the Feds will follow their lead and start lowering rates because inflation has gone

down by a little bit. Bond king and billionaire Jeffrey Gundlach states that the

probability of the Feds lowering rates in 2023 is 75%. That could be true; but we

will have volatile stock and bond markets for years to come. Fed Chair Jerome

Powell stated that he wants to be like Volker and kill inflation for the long term

than what Arthur Burns kept doing in the 1970s. Gundlach and Siegel believes that

Feds unloading $95 billion per quarter is too much and that is creating a liquidity

problem. I do not agree. If there is a liquidity problem, why did the bonds rise so

sharply bringing down the yield?

Decreasing the Federal Reserve balance sheet is also a national defense issue. In

2007/2008 when we came close to a financial market meltdown and when George

W worked with the Congress and the Federal Reserve and started a program to save

the economy, Putin approached China (PRC) and suggested that they both get

together and unload all their US Treasuries which would have led to a real

meltdown in our economy. Per US Federal Reserve, as of July 2022, foreign

governments held 7.5 Trillion USD in US Treasuries. Due to “printing of money”,

the US Federal Reserve balance sheet is at 8 to 9 trillion USD. China (PRC), which

owns an estimated $972 billion in U.S. Treasuries, is the number-two investor

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among foreign governments. China buys Treasuries to help depress the value of its

currency, the yuan. Russia owns only about 2 billion US treasuries as of December

2022. If the Feds see that the bond market is bringing down the yield, the Feds

should increase the rate of reducing their balance sheet and be prepared for the next

unexpected economic disaster. All prudent people believe that the Federal Reserve

and government stimulus checks saved us from a major depression in 2020 covid

crisis. The Federal Reserve had only an indirect impact on mortgage rates until

2008. Around this time, the Fed began buying Mortgage Backed Securities (MBS)s

directly in order to support the economy, help decrease mortgage interest rates and

add liquidity to the market. A few months ago, Fed Chair Powell stated that the

housing market was in a “bubble”. The US Federal Reserve and most central banks

around the world, with their “money printing” created this problem and a huge

worldwide homeless problem with 520,000 homeless in the US. If you live in San

Diego county, you are sure to see TV ads from “I buy SD.com”. Whatever house

you own, despite its condition, with no banks or mortgages they will buy your

house within 24 hours! Didn’t they learn a lesson from Zillow? Just like in 2007,

they assume they can keep adding to inventories as prices will continue to go

higher. This is another reason why the Feds should not pivot. As Powell stated

when these speculators get out of the market, he can lower rates so middle class

people can buy houses with mortgages and not with 100% cash. Per Josh Brown on

CNBC, the mortgage industry is already in a recession and home builder Lennar

reported that their cancellation rate increased from 12% to 24% from Q3 to Q4 in

2022. With the expected recession, this will only get worse.

Blackstone's real estate fund for wealthy prompts SEC queries-

The U.S. Securities and Exchange Commission (SEC) has reached out to

Blackstone Inc (BX.N) following an increase in investors pulling money from its

real estate fund, Bloomberg News reported on Friday, citing people familiar with

the matter. Earlier this month, the asset manager limited withdrawals from the

$68-billion Blackstone Real Estate Income Trust after receiving too

many redemption requests. The regulator is trying to understand the market

impact and circumstances of the events, according to the report, which added that

the inquiries aren't any indication that the firm is under investigation or committed

any wrongdoing. (Reuters, 12/16/22).

Divine Justice?

UN accuses Blackstone Group of contributing to global housing crisis. World’s

largest corporate residential landlords called out for their practices of inflating rents

and ‘aggressive evictions’. The UN’s housing advisor has accused private equity

firms and one of the world’s largest corporate residential landlords, Blackstone

Group, of exploiting tenants, “wreaking havoc” in communities and helping to fuel

a global housing crisis. In a stinging critique of the role of private equity in the

housing market UN rapporteur Leilani Farha and co-author Surya Deva,

chairperson of the UN Working Group, singled out Blackstone’s business practices

– which they claim include massively inflating rents and imposing an array of

heavy fees and charges for ordinary repairs – as having “devastating consequences”

for many tenants in countries around the world. In a series of letters to Blackstone

and government officials in Czech Republic, Denmark, Ireland, Spain, Sweden and

the US, Farha and Deva accused private equity and asset management firms

like Blackstone and its subsidiaries of undertaking “aggressive evictions” to protect

its rental income streams, shrinking the pool of affordable housing in some areas,

and effectively pushing low and middle-income tenants from their homes.

Blackstone has, in recent years, acquired hundreds of thousands of homes in the

US, Europe, Asia and Latin America, often through subsidiaries, making it one of

the largest and most powerful global players in the housing investment sector. Farha

said the commodification of real estate by private equity investors in recent years

had made housing for many people increasingly expensive and precarious:

“Landlords have become faceless corporations wreaking havoc with tenants’ right

to security and contributing to the global housing crisis.” However, the need to

maximize profits to repay investors typically led to a “constant escalation” of

housing costs for tenants, primarily by hiking rents – in some cases by 30-50% –

and ruthlessly pursuing eviction for non-payment. One corporation issued nearly a

third of its tenants with eviction notices, the letter says. The authors allege that a

Blackstone subsidiary in the US, Invitation Homes, imposes charges for minor

maintenance repairs and tasks such as removing insect infestations. She alleges that

it imposes late rental payments of $100, even if they are just one minute late, or due

to an error in Invitation Homes’ computer system. (The Guardian, 3/26/19).

A few months ago, the Governor of California promised to take measures to stop

Wall Street and other speculators from creating a worse homeless problem-as done

in Canada and New Zealand. Still nothing on that!

7

Talking of “Divine Justice”, remember Valeant Pharmaceuticals? During the 2016

presidential election campaign, Trump and Hillary both stated that they would take

action against Valeant and other companies of that nature. They researched and

found companies that have not raised prices in a long time and where the demand is

inelastic and the CEO of Valeant went on a buying binge. Then they raised prices

100% to 1,000%! In many cases the scientists who discover these medicines would

sell those patent rights for a low amount (as low as $1). The stock price rose more

than 4,000%! Some of those drug prices never went down. More than 1

million Americans with diabetes have to ration lifesaving insulin because they can't

afford it, a new study shows (US News, 10/18/22) According to a new study,

released earlier this month from CharityRx, Even all poor people with diabetes in a

poor country like Mexico but that is not true in the richest country on Earth! 79% of

U.S. adults who have diabetes or care for someone who does say paying for insulin

has created financial difficulty.(Forbes,6/20/22). Prior to this scandal, billionaire

investor Bill Ackman used to be compared to Warren Buffet, Valeant deal was so

profitable, he and other billionaire investors gave in to their greed and forgot all

about diversification and put most of their funds in to Valeant. Then within a 6

month period, Valeant’s stock price fell almost ninety per cent, thanks to a toxic

combination of sketchy accounting, political blowback, and slowing growth. Bill

Ackman and other investors lost billions. The CEO and the brainchild of this cruel

business first lost a great deal when Valeant dropped from about $270 to about $27,

then he lost his job. Thereafter Goldman Sachs sold most of his assets as he could

not comply with a margin call. Finally, he got a heart attack. Sounds like “divine

justice”?

So, what to expect from the market? No one knows for sure. Who has a crystal

ball? The market analyst and astrologer for some of the best Wall Street firms for

40+ years, Merriman is expecting big unexpected surprises in 2023-both good and

bad. If the market crashes, then we could get opportunities to buy! This slow grind

to the bottom is not healthy….

Have a great month!

December 5 Post

Hi There again,

We had a 8.45% gain in our portfolio last month (see our scoreboard). Last 2

months we had gains after going down for 11 months. Is the bear market over? I do

not think so. Usually bear market ends with bearishness reaching an all-time high.

We are not there yet. According to Barron’s, “Inflows to US stock mutual and

exchange-traded funds for 2022 through October, on track for the largest annual

haul since 2013!

At times, we have to wait patiently to reap the rewards. Take Boeing for example,

on 2/19/19, it hit an all-time high of $424 but it has been on the decline for a very

long time. However, from 9/30/22 to 12/2/22, Boeing rose by 50% ($121 to $182).

If you look at the chart, it just passed a double bottom. Value stocks are back!

As the market expected, Fed Chair Powell on 11/30/22 indicated that the Federal

Reserve is ready to pause rate hikes; and as expected the market rallied As Steve

Weiss stated a few weeks ago, first the market will rally when the Feds pause

raising rates and then when we get lower revenue/earnings reports in the future,

market will decline again. I agree with that assessment. There is a time lag between

rate hikes and the impact it would have on “main street”. The Feds did not say that

we have seen the last of interest hikes. All depends on the rate of inflation

In my last newsletter I stated how the market guru Joe T bought AMD at $90 and

sold at $65 saying that he got caught to the famous Wall Street “falling knife”. As

Joe T was selling, I started buying AMD (nibbling-little at a time). After Joe T sold

AMD at $65, AMD rose to $76- 17% gain. The chart just made a double top so

expect AMD to fall significantly in the future.

Jessica Inskip is an advanced product specialist within the self-directed investing

space. Jessica is currently the Director of Education and Product for OptionsPlay.

Jessica’s responsibilities include solving key industry issues via creative thinking,

driving the vision of innovative business ideas with a focus on options, technical

analysis and engaged trader experiences. Jessica stated (on CNBC) that the market

will continue its bully rally till 12/16/22; or till 12/31/22. The market is on one of its

Santa Claus rallies. In my opinion, this rally is irrational.

We had a slight decrease in the rate of inflation in November so most people

assumed that the Federal Reserve is ready to pivot and stocks and bonds rallied. Fed

2

Chair Powell has stated over and over again that they will act more like Paul Volker

(1980s) than Arthur Burns of the 1970s.

In the 1970s, for the slightest decrease in inflation, the Feds would pivot and start

lowering rates. As Carl Icahn stated on 11/10/22, if the Feds do not keep increasing

rates and pivot for the slightest decrease in rates, we will have a period of

hyperinflation in the future (as we did in the 1970s). The Feds will have to keep

coming back to raise rates and each time they raise rates, they will have to raise

rates to a much higher level. Initially this happened to Volker too; then he raised

rates to about 15% and killed inflation for 30 years. What would the Feds do? No

one knows but depending on what they do, we will know what we can expect in the

future. For the first time in many years, the Federal Reserve stopped buying

treasuries and started selling their treasuries to decrease their balance sheet. Initially

they were going to decrease their balance sheet by $50 Billion in Fall 2022 but they

ended up selling treasuries over $90 Billion. Everyone was afraid that when they

start dumping their treasuries, interest rates would rise sharply. The opposite

happened! They have been raising rates for a while (3% since 6/16/22) and after the

November 2, 2022, 75 bases points raise, they warned that they will keep increasing

rates for many months and will keep rates at high level for many years. The market

refused to believe them as they no longer have much credibility. If they pivot soon,

they will lose more credibility. 11/2/22 to 11/25/22 (23 days), the S&P500 went up

by 4+%! More alarming is what happened in the bond market. Bonds go up when

the bond yield (interest rate) go down. Let us look at 20 yr treasury bond ETF,

“TLT” – On 11/2/22 this ETF was at 96.91 and by the market close on 11/25/22, it

was at 102.61 ! That is an increase of 5.88% in 23 days !! The market keep

lowering interest rates. Most people expect the Feds to increase the interest rate by

50 bases points in December and then be data dependent. Since they follow the

bond market, most probably they will do that; but I have a feeling that they are

concerned about falling rates in the bond market and state they are not ready to

pause increasing rates. If stocks and bonds fell sharply, that would have given the

Feds an opportunity to pause here. In my opinion, we are going to have a1970s style

market. I do not understand why the Feds did not make use of this opportunity and

unload more of their treasuries on their balance sheet. Why is that important?

Currently, after printing so much money, their balance sheet is bloated at 8+

Trillion dollars. If they manage to decrease it sharply, they will be in a position to

help the US economy if we have a deep recession or an economic calamity in the

3

future. Instead of unloading $90 Billion per quarter, they should unload about $1

Trillion per quarter-that is if the market keeps lowering rates.

Now to my favorite punching ball- Bitcoins and Cryptos! Yes, a lot of people made

a lot of money in Bitcoins/Cryptos. $9 in 2009 in Bitcoins would have got you

$6.8Million when bitcoins hit an all-time high of $64,000 (on 11/25/22 it was at

$16,000-75% decrease!) in early 2022 (double top). Even some gamblers in Vegas

and drug lords make a lot of money so that is not a good reason to get involved with

Bitcoins/Cryptos. Within the past 6 months, cryptos value has gone down from $3

Trillion to $800 Billion. When cryptos were flying high, those people borrowed

against their cryptos and also got in to other counterparty relationships with

mainstream financial institutions. Cryptos are totally unregulated and most act like

a big ponzi scheme! Nothing tangible and nothing real! Like all those metaverse

and NFT imaginary things! Some used to say that FTX was the J P Morgan of the

crypto universe! In 2008, Bitcoin was created by a Japanese software engineer

named “Satoshi” but no one can find him. One objective was to create a “stealth”

medium of exchange as a substitute for money that does not go through the banking

system so governments of the world will not be able to tax or regulate the industry.

Now they are asking the US government to regulate Bitcoins and Cryptos. Why?

Simple-getting credibility and respectability.

Did you hear about the FTX debacle? During their hay day, the founder of FTX was

even featured on the Forbes cover as “Warren Buffet” of the crypto universe! FTX

that had more than $32Billion went insolvent on 11/11/22. Many investors are

already writing off their exposure to FTX. They did business in 48 countries with

100,000 creditors. Most pundits expect all financial markets to be affected by the

FTX contagion effect. Do not expect to see this soon. Bear Stearns crisis happened

in March 2008 but the Lehman Brothers crisis that rattled the economy happened in

September 2008-6 months later! Stay tuned!

FTX was created and destroyed by their first CEO, Sam Bankman-Fried. He is only

30 years! Studied at MIT. Just like Elan Musk, very intelligent but there is a

difference between intelligence and wisdom. Even with all the legal cases pending,

Sam appeared on CNBC for a long interview on 11/30/22; and I was wondering

why he was foolish enough to do that. About 30 minutes in to the interview, CNBC

anchor asked him if his attorneys asked him not to do this interview and he stated

that they vehemently opposed it. One man who lost his life savings of $2 million

4

was there to question him. Sam was in Bahamas and did this interview remotely.

No surprise there!

Have you heard of the “Crocodile of Wall Street’Meet the ‘Crocodile of Wall

Street’, Heather Morgan: the crypto rapper and TikToker known as ‘Razzlekhan’

once allegedly laundered US$4.5 billion worth stolen from a Hong Kong bitcoin

exchange. In February, Morgan and her husband Ilya Lichtenstein were charged by

federal prosecutors with alleged conspiracy to launder over US$4 billion in stolen

bitcoin, per CNBC. Morgan, at first glance, is just a regular Wall Street hustler. She

has a degree from the University of California, Davis, and began her career as an

economist for the World Bank in Cairo, Egypt, according to her LinkedIn profile.

Before entering the corporate world, Forbes reported that Morgan also spent time at

the Hong Kong University of Science and Technology conducting seminars about

American culture for students. According to her LinkedIn profile, Morgan also

made stops in start-up tech firms such as Tamatem Inc. and Endpass. The former

economist would later venture into her own Software as a Service (SaaS) company,

SalesFolk, as the current chief executive officer. According to her Muckrack

portfolio, Morgan was once a writer at Inc. and a former contributor to Forbes. In

her bio, she describes herself as an economist, serial entrepreneur, SaaS investor

and rapper who loves robots. On February 8, shocking news rocked the world of

cryptocurrency when the FBI arrested Morgan and her husband Ilya Lichtenstein.

According to CNBC, the couple was accused of a scheme to launder upwards of

US$4 billion worth of bitcoin stolen in the 2016 hacking of Bitfinex – a crypto-

exchange platform based in Hong Kong. Reuters dubbed it the second-biggest

security breach ever of such an exchange. The Justice Department has already

seized more than US$3.6 billion back from the heist, which was the largest financial

seizure in history, per CNBC.

North Korea’s missile program has been mostly funded by stolen cryptos. In March

2022 alone, they gained $620 million from crypto theft. In 2021, it was over $400

million. According to the UN, in 2019, money collected through stolen cryptos

exceeded $2 billion for North Korea. There are universities in North Korea to teach

these techniques to their young people who get jobs in the military. They have

carried out these activities in 150 countries. 75% of their trade is with the Peoples

Republic of China. North Korea also make money by selling arms in the black

market. Their government has converted 2.6 million of their people in to slaves and

these slaves have ben sent overseas to earn foreign exchange for the government of

5

North Korea. These slaves get sent to 58 countries but 80% have been sent to

Russia and China. (Wion Indian news, 11/24/22)

40% of inflation is due to housing (mainly rents). Most of the 8 trillion the Federal

Reserve “printed” inflated assets of the richest people in the country. Multi-billion

dollar real estate “moguls” bought millions of houses by paying cash and then

rented these to the middle class and the poor and kept increasing rents 100% + per

year. Fed Chair Powell stated that after he clears these speculators, he will lower

rates so the people of this country would be able to buy houses with traditional

mortgages. We are not close to that point yet. Have you heard of Vinebrook

Homes?

Residential REITs buy and hold property and then rent the property to tenants using

gross leases. Sometimes they sell properties to upgrade other properties or to make

new and similar acquisitions, but it's always with the goal of improving the rate of

return on their investments. EQR, one of the biggest apartment REITs that uses

money printed by the Federal Reserve and create homelessness in this country by

raising rents over 100% per year was at $91 on 4/2/22, on 12/2/22 it ended at $64.

Most of these REITS have underperformed the S&P500 by 77% recently. If they go

down 90%+, it would make the Federal Reserve comfortable in lowering rates. As it

is there are over 500,000 people homeless in the US.

In February, Jenike Allen traveled to housing court in Cincinnati to try to stave off

eviction from her three-bedroom rental home. Her landlord said she had failed to

pay a rent hike it had told her about, and Allen wanted to assure the judge she had

never received notice of an increase. “We had the exact same story and the exact

same company — VineBrook Homes,” Allen told NBC News. “If I would have told

somebody this, they’d say, ‘You’re making it up.’” Allen’s experience in court that

day was no anomaly, local legal aid lawyers say. VineBrook Homes Trust Inc.,

which owns over 3,000 single-family homes in the Cincinnati area, is one of the

most aggressive landlords in bringing eviction proceedings against its residents,

they say. A big institutional owner of over 24,000 single-family homes in mostly

lower-income areas, VineBrook Homes is a real estate investment trust (REIT) with

properties in 18 states, including Alabama, Indiana, Missouri and Mississippi.

VineBrook Homes was founded in 2007 by Dana Sprong, a Massachusetts real

estate developer and Harvard Business School graduate, and his partner Ryan

McGarry. The company is one of a growing number of institutional investors

6

buying up single-family homes across the country that they turn into rentals. It is

backed by wealthy investors and affiliated with a large real estate and private-equity

firm called NexPoint Capital in Dallas, according to regulatory filings. Purchases of

housing stock by institutional investors like VineBrook have impacts extending far

beyond their tenants, research shows. Ownership by these investors also raises

housing costs across a region, according to 2020 research by the Federal Reserve

Bank of St. Louis. And higher housing costs can contribute to increased

homelessness, a 2020 study by the Government Accountability Office found; it

concluded that a $100 increase in median rent in an area was associated with a 9%

increase in its estimated homelessness rate. Laura Brunner, president of The Port of

Greater Cincinnati Development Authority, an economic development agency,

characterizes VineBrook’s business model as predatory and says it and other

absentee landlords are causing significant woes for renters in Cincinnati. “For

decades, real estate investment trusts and investment funds have been pursuing

office buildings, apartments, retail space, but after the foreclosure crisis, they

started picking up single-family homes cheap,” Brunner told NBC News. “They

realized the leverage is much different when you’re talking about a poor family than

if Walmart is your tenant. It’s easy to bully them, not take care of their needs, evict

them if you don’t like them or raise their rents.” In July 2021, the city of Cincinnati

sued VineBrook to recover over $600,000 in unpaid water bills and fines it owed

for building code violations, litter and trash citations. The suit

accused VineBrook of “negligent, reckless, and intentional conduct” that “interferes

with the public health, welfare, and safety in Cincinnati;” and identified

approximately 50 properties with code violations including hazardous wiring, yards

with grass over 10 inches high, unrepaired roof and fire damage and no smoke

alarms. Compared with other states, Ohio has landlord-friendly eviction laws, legal

aid lawyers say, making it something of a magnet for big real estate investors.

Tenants accused of nonpayment of rent typically receive what’s called a three-day

notice telling them they must move out within that period or face an eviction

proceeding. From start to finish, evictions can take about a month, legal aid lawyers

say. (Gretchen Morgenson, NBC News, 11/22/22)

One solution is to have rent controls and laws limiting the power of speculators to

create these problems. I do not think it is possible to do it at the Federal level.

VineBrooks operates in Republican states. There are over 500,000 homeless people

in the US; and the numbers are growing. Governor of California promised to make

sure that speculators in real estate do not create homelessness in California.

7

Fed Chair Powell once again stated that a part of the inflation problem was the tight

labor market and this can be resolved by opening up to more immigrants.

Republicans will never allow that to happen. As Powell stated, the problem would

get worse as millions of people are retiring early. Most developed countries

(countries in Europe, Japan, South Korea, Most Arab countries etc.) are open to

immigrant workers from third world countries. In fact, countries like South Korea

and Japan teach their languages in poor countries to tap those labor markets. Our

Social Security is dependent on collecting more from social security taxes from

working employees exceeding the cost of the program. Politicians have avoided

cutting social security but now the Republicans are proposing cuts in social

security. That would be a gift to the Democratic Party. Most economists expect a

recession in 2023 but the Inflation Reduction act passed recently might help us to

avoid a severe recession. Government spending on our infrastructure which benefits

the country more than inflationary tax cuts for the rich and the biggest companies in

the US. This comes from Keynesian economics that saved the US from the Great

Depression. Monetary policy is more effective than fiscal policy in stimulating the

economy. Mathematical economics can prove that government spending is more

effective than tax cuts in stimulating the economy and it fair to the middle class and

not the richest 1% of the country. Republicans say that this is inflationary; but we

can make it net disinflationary by raising taxes on the richest who earn more than

$400K per year (as Biden proposed) and taxes on companies. We were all told to

expect a huge red wave. Trump promised a “red tsunami”. Mid-term election

always go against the party in the White House. Democrats should be very grateful

to Hannity/Trump team for nominating “good” Republican candidates. Only

George W did better than Biden and that was due to 9/11. People did not buy the lie

that Biden was responsible for inflation. Unfortunately, Nancy Pelosi lost her

position by a few seats. It will be interesting to see how we will do over the next 2

years. The country should be grateful to Obama and George W and Liz Cheney for

trying to save democracy. Trump has always stated that he really like how dictators

ran countries like China, Russia and North Korea. George Washington could have

easily appointed himself as king but all Founding Fathers wanted to created an

everlasting democracy in the US. If we go in to “isolationism” calling it “America

First”, our economy will suffer in the future. 50% to 70% of revenue of our multi-

national companies come from other countries. If other countries replace the US as

the major superpower, they will make sure that their companies will take the place

held by US companies. As a student of economic history, I can give you many

8

examples. During Biden’s term, our deficit went down by $1.7 Trillion. Since world

war 2, the only time we had a budget surplus was when Bill Clinton was President.

That was initiated by Herbert Walker Bush who went back on an election promise

and raised taxes for the benefit of the country. Since the Republicans did not

support H W Bush when he ran for his second term, George W went on a tax

cutting spree-exploding our deficit. Stay tuned!

Happy Holidays!

Fernando

November 1 Post

Hi Again,

We have been in a bear market for the past 12 months! Our portfolio has been

losing money every month since March 2022 and for the first time we registered a

net gain (+13%) for October 2022! Sharp rallies take place during bear markets!

Who is Carolyn Boroden?.. Carolyn Boroden is a commodity trader advisor

and technical analyst – she is well known in the trading world and for good

reason. Known as the Queen of Fibonacci, Carolyn began her trading journey on

the floor of the Chicago Mercantile Exchange in 1978. She has witnessed many

changes over the years and is an expert when it comes to how trading works. On

10/11/22, on CNBC, she predicted that the market is long due for a “real

bounce” soon. From 10/12/22 to 10/28/22, S&P 500 rose by 9% in 16 days! No

wonder she has been the “queen” since 1978! During the same period, technicians

Carter Worth and Merriman were expecting a decline in the S&P500. On the same

day (10/12) Carolyn predicted a “real bounce”, Carter Worth (leading technician on

CNBC etc) stated that the market is not oversold so “sell, sell”. On 10/13/22,

market (DJIA) fell 500 points in the morning and ended the day with a a 800 gain.

This is a classic turnaround in trend. The question is for how long?

On 4/29/22, we bought Netflix for this newsletter at $190.26 after it had a major

drop. Even though the stock market has been in a major bear market for the

past year or so, since 4/29/22, our Netflix holding is up by 55.35% - in just 185

days! .This is why I am a strong believer in “buying/nibbling when there is blood

on the street”. 60% of Netflix revenue come from overseas. They are not doing well

in the US and Canada but they are doing great in many other countries. Now they

are going to have a lower rate for people who are willing to watch Netflix with ads.

Also they will drop people who share passwords-which is a big problem in other

countries. They have 30% of the global market share and YouTube is the 2 nd highest

with 20% of market share. Most Wall Street experts believe that Netflix will

overtake Facebook when it comes to ad revenue. Netflix ended on 10/28/22 at

$296. On 11/14/21, Netflix was at $678.80! The new low priced ads containing

service is supposed to take ad revenue from Facebook/Meta. TikTok has already

taken away most of their ad revenue. As they did in India, the US government

should ban TikTok from operating in the US. It is safe to assume that China (PRC)

is using TikTok to collect information on all our young people and they will not put

it to good use. However, in the future we would consider increasing our

Facebook/Meta and Intel holdings as we are showing a loss on those stocks on our

scorecard.

Ever since I started writing this newsletter, I have been asking everyone to start

“nibbling” when stocks or markets go down and limit your purchases to low amounts or else

you will get to the famous wall street maxim, “falling knife”. Let me give you a good real life

example by telling you what happened to the money manager, Joseph (Joe) Terranova. Joe

Terranova is a series regular on CNBC's Fast Money and the Chief Market Strategist for Virtus

Investment Partners, a $25 billion Hartford-based asset management firm. Prior to joining

Virtus, he spent 18 years at MBF Clearing Corp., where he was the director of trading and

managed more than 300 traders. For decades, we all knew that the secret to making money in

the market was to buy low and sell high but prior to this bear market, the market was acting

irrationally for years and Joe T even published a book “ Buy high, Sell Higher”. This a sign of a

market top. On 7/28/22, Joe T bought a big chunk of AMD at $97 saying he sees a better future

for AMD. On 10/7/22, AMD fell to $61 and Joe T was complaining that he was wrong on AMD

and he got caught to a “falling knife”! Joe T lost 37% just in 71 days! I have been going in

and out of AMD stock and I think AMD is sure to be a big winner in the next 5 to 10 years.

Prior to 10/7/22, I purchased AMD when it was at a net average cost of $65 but I also purchased

some PUT options on AMD as a hedge with a strike price of $45 (that expire January 2024). As

the AMD stock price declines, my put price will rise. Perfect hedge! If I add my paper loss of

AMD to my paper gain of AMD put options, my net loss is less than $25! I expect (or better

yet-HOPE!) that AMD will continue to decline in the future. On 11/21/21, AMD hit a high of

$154! Yes, it is possible that AMD will never reach that level again; but I think it will exceed

that level in 5 to 10 years.

Treasury-market liquidity is drying up and it’s going to get worse. The problem is bigger than it

seems. Liquidity in the U.S. bond market, the world’s largest, has been deteriorating since the

Federal Reserve began raising interest rates earlier this year. The end of massive monthly bond

purchases followed by the start of quantitative tightening has worsened the problem as the Fed

tries to extricate itself from Treasury and mortgage markets after buying a third of each.

Treasury Secretary Janet Yellen recently said she was “worried about a loss of adequate

liquidity in the market,” as Treasury supply booms to fund government spending but regulations

limit big financial institutions’ willingness to serve as market makers. At the same time, traders

see the potential for another 2% in rate hikes by March 2023. What is happening amounts to an

“illiquidity spiral,” says Greg Barker of Concoda, a geopolitical and financial newsletter. As the

Fed reduces Treasury market liquidity, volatility creates more illiquidity, which leads to more

volatility, he says. The Merrill Lynch Option Volatility Estimate, or MOVE, index, shows how

violent the action has been. The index, which captures bond-market volatility much like

the Cboe Volatility IndexVIX –4.66% , or VIX, does with the stock market, is trading at the

highest level since mid-2009. Some strategists say this is just the beginning. “The USD [U.S.

dollar] wrecking ball will force central banks to defend their currencies,” says Richard Farr,

chief market strategist at Merion Capital, as the dollar continues to rise as the Fed aggressively

raises rates in the face of inflation. “If central banks must defend their currencies, they will sell

Treasuries to raise USD. The act of selling Treasuries is bearish for bonds [meaning yields will

rise], and we believe this worldwide phenomenon is barely even out of the starting gate.”

Moreover, Deluard says a surging dollar threatens a major source of demand for U.S. stocks.

Private-sector defined-benefit pension funds have been selling some $400 billion of stocks

annually, a trend that’s spreading to the public sector, he says. Pension-fund outflows have been

offset by purchases of U.S. equities by the rest of the world, with sovereign wealth funds and

foreign central banks amassing large holdings over the past 20 years. But the bear market and

dollar shortage will cut this source of demand, as dollar-denominated assets are sold to defend

national currencies, he says. Now, everything is getting hit at the same time, says LaVorgna.

That comes on top of a separate problem. The personal savings rate fell to 3.5% in August,

roughly half of what it had been in the decade before the pandemic. As ongoing liquidity

problems portend lower asset prices, LaVorgna says households that can save will increasingly

do so at the expense of economic growth. The impact is potentially significant, given that stock

ownership is concentrated in wealthier households and the top two income quintiles represent

60% of overall consumption. “As long as the official policy is to make the stock market go

down, so that people are less wealthy, so that they buy fewer things, so that prices stop going

up, all while doing nothing about fiscal policy (tax cuts given by Tump), we believe the correct

posture is to be bearish on stocks and bullish on inflation,” he wrote. Concoda’s Barker notes

that the U.S. continues to issue twice the amount of bonds a year compared to pre-Covid. As

increased supply is issued into increasingly illiquid conditions, higher yields and Treasury-

market instability is ahead, he says. That’s a conclusion from which Fed-pivot dreams are born.

But the optimistic view is too shortsighted, with the problems fueling Treasury-market

illiquidity, bond yields, and inflation so pernicious. (Lisa Beilfuss, “The Economy”, Barrons,

10/24/22)

Talking about US Treasuries! In my own way I try to find strategies that will work in this bear

market. When interest rates go up, what happens to bond valuations? They go down! Making

money by short selling the bond market is a “no-brainer”. We can do this in the stock market by

using bond ETFs. Most people prefer to trade the 20+ year bond ETF, iShares 20+ Year

Treasury Bond ETF (TLT) as it is very liquid. I really should have started doing this in July

2020 but better late than never. On 9/22/22, I bought TLT put options (to short sell TLT) with a

strike price $95 (at that time, the price of TLT was at $103) . On 10/14/22, in just 22 days, my

“paper” gain was 46% !! Too early to sell. Since 1/1/22, I have made 5 other trades on TLT

and sold one at 0 profit and gains on the rest : 18%, 47%, 94% and 146% (average time

held: 90 days) !! During the same period the stock market (S&P 500) fell 24.68! It is prudent

to assume that interest rates have to go higher in the short term to tame inflation but at times,

market conditions will lower rates and that will give me more and more opportunities to short

sell TLT with put options.

I love to study option tables. By studying option tables I can get a good idea of what might

happen in the future. Are most people bullish enough? Are most people bearish enough? Are

they rational? In early 2020, when covid hit China (PRC) I started buying put options on

Disney and made a 845% profit within 3 months! Once again, I discovered something

interesting on 10/14/22 with respect to TLT options. I was looking at the TLT options expiring

1/17/2025. On 10/14/22, TLT ended around $98.50. First for all, you lay people, let me explain

the definition of open interest. Open interest is the number of options or futures contracts that

are held by traders and investors in active positions. These positions have been opened, but

have not been closed out, expired, or exercised. I always get in to options with a lot of “open

interest”. On TLT option table for “call options” (expecting the TLT price to go up due to

decreasing interest rates) that expire 1/17/2025, the open interest on options with a strike price

of $160 was 2,220 ! Open interest on all other call options came to less than 1,000! This is

amazing! Let me explain in laymen terms; out of all “traders” who are in TLT call options,

more than 2/3, expect TLT to go up more than 60% before January 2025 and have a significant

lower interest rate by then. Last time TLT was at $160 was in November 2020. There was a

“double top” on the TLT chart (Feb/July 2020) and TLT came crashing down with the Federal

Reserve raising rates to combat inflation. How can I make money with this information? As I

make money by short selling TLT in the short run, I will start nibbling at TLT ETF or call

options. Bond market volatility will give immense opportunities to make money in TLT trades

for the next 3+ years!

Here is another possible strategy we can employ to make money with TLT options that are

connected to US Treasuries. The ETF known as TLT (20 year treasuries) closed at 93.63 on

10/21/22. 2003 to 2009 TLT would reach 96.30 and not go beyond 96.30. So it is safe to

assume that when rates normalize, TLT could go back to the range of 81.70 to 96.30. This

knowledge could give us many opportunities to trade this ETF with call and put options. For

every 100 shares of TLT you buy, you can “write/sell” I covered call option on TLT. For

example, for 500 shares of TLT, you can “write/sell” 5 covered CALL contracts of TLT for

any strike price and for any contract expiry date. Choices! Choices! Studying option tables as of

10/21/22, Options expiring January 2025 with a strike price of $95 was at $16.50. So let us

assume you bought 100 shares of TLT at $93.63 for $9363. Now you can “write/sell” 1 covered

call option contract at $16.50 for which you will immediately receive $1650. From this point

forward, you have many options- pardon the pun. If you want you can just take a vacation till

January 2025. You have already received a 17.62% profit! Not bad for a 14 month trade! Prior

to January 2025, if TLT goes over $95, the buyer will exercise these options; and it is automatic

sale of your 100 shares at $95 (for which you paid $93.63). That is another 1.5% (approx.)

profit on this trade. So the total gain is over 19%! Let us assume that TLT does not go over $95

prior to February 2025, then you can pocket the 16.5% from the option premium and you get to

keep your 100 shares to repeat this kind of trade in the future. In an option premium price you

have 2 components (A) intrinsic value (B) time value. In other words, as we get closer to

January 2025, the price of this option price could go down; also if TLT falls, this option price

will fall. Then you can buy back the covered call option that you “wrote/sold”. If it falls to

$8.25, you can buy back the call option and make a 100% profit-it is like buying at $8.25 and

selling at $16.50; you sold first and then bought it later!

Where are we going from here? What will happen to our financial markets? S&P500 chart

shows a recent double bottom so the stock market could go up significantly in the short run. For

how long though? Sooner or later we have to consider the fundamentals. Remember the golden

rule? Don’t fight the Feds. The financial markets are fighting the Feds. As the former Governor

of the Bank of Israel stated, if the US Federal Reserve pivot to please the market, they lose all

credibility -which is already damaged as they took so long to take action against inflation. There

is no separation of economics and politics. Oxford University that started teaching economics

for undergrads, had a BA degree in Economics, Politics and Philosophy. Rate of inflation is at a

40 year high. All prudent economists (including those who work for the Federal Reserve) know

that 80% of the problem was created by the Federal Reserve by “printing” over 8 trillion dollars

in the recent past. 15% of the problem was created by the huge tax cuts for the rich and the

corporations; and only 5% due to stimulus payments sent to 85% of the US population who earn

less than $50K per year. Fed Chair Jerome Powell admitted that it was wrong for them to wait

so long to act against inflation stating that “inflation was transitory”. I saw many Republican

ads stating that Democrat congress men and women stated that inflation was transitory. By

fooling the masses with these lies, if the Republicans win control of the congress in 2022, it

would be terrible for the middle class and the poor. Democrats can only blame themselves as

they did a very poor job of explaining this situation. They could have used what happened in

UK to make a case against the Republican policies of tax cuts for the rich and cutting essential

payments to the middle class and the poor. Liz Truss who came to power in UK to reintroduce

Reaganomics lasted only a few days in power and becoming the UK PM to hold office for the

shortest period. When she announced tax cuts for the richest people, markets destroyed the UK

currency and the IMF warned the UK government that this will destroy the UK economy and it

is extremely unfair to the middle class and the poor at the expense of the wealthiest people in

UK. According to a certain political theory, if the control goes to the Republicans in 2022,

there is a high probability that Democrats will keep the White House in 2024. The stock/bond

markets are behaving as if the Federal Reserve will pivot soon and start cutting rates in 2023.

Do they realize that the Federal Reserve is trying to tame a rate of inflation that is at a 40 year

high? Jerome Powell stated that he is more like Volker than Arthur Burns. Volker had to raise

rates to 15% to tame inflation. 40% of inflation is due to the rise in housing/rents. Most of the

housing gets bought with cash by billion dollar funds and real estate billionaires and they are in

to price gauging. This has nothing to do with the lack of housing. Fed Chair Powell stated that

he will increase rates to destroy these real estate speculators and then he will lower rates so

most people will be able to afford housing again. They created this problem by “printing” over

8 trillion dollars. So we are sure to see a lot of volatility in stock and bond markets over the next

few years! That is not a bad thing! This is going to be true for all countries. In fact, I have been

buying put options on the ETF known as EEM (Emerging markets) and already I can see gains

in my put options. There is a time to sow the seeds and there is a time to reap the harvest. When

a stock or a market crashes (i.e. Netflix), it is time to “nibble” (buy a little at a time) and know

that in 3 to 5 years, you will be able to reap the benefits of your investment. However, if you

buy too much, you will get caught to the famous Wall Street, “Falling Knife” and lose

everything! While you “nibble”, you can also buy some put options as a hedge or insurance. We

are going to have an exciting future! Be optimistic!

Have a great November and enjoy Happy Thanksgiving!

Fernando

October 2 Post

Hi Again!

Welcome to October- the month of big market crashes (1929 and 1987) !! Most people perceive market crashes as terrible but that is not prudent. There are 2 major advantages in having a crash: (1) Wonderful buying opportunity that will reward you within 5 years! (2) Instead of having a very long, grinding, bear market, this bear market could end soon after a major crash. The Federal Reserve will love a crash as that is extremely deflationary and 99% of the people who will suffer will be the top 1% of the richest people in the US. Even now there are some amazing bargains out there and I have already started “nibbling”. As they always say on Wall Street, get your shopping list ready but only buy a little at a time or you will get caught to the famous Wall Street “falling knife”!!

On 9/29/22, Josh Brown (a brilliant guy!) said on CNBC that due to Fed Reserve action, we have lost $10 Trillion in market cap in the stock market already. The loss is more in the bond market. Most of the money lost belonged to the top 1% richest Americans. Josh also reminded that once again, as inflation rose and stocks/bonds fell, price of gold also fell. We see so many TV commercials on how gold is a great buy as a hedge against inflation and bear markets! Not true! Commodities are priced in US dollars (USD)  so as the dollar has being rising to record levels, it is a drag on commodities. Many countries have tried to replace the USD but that will never happen.

The US dollar (USD) surge is raising interest rates in most countries. They have no choice or else capital will flow to the US like a tsunami. For the past 30 years, the Federal Reserve was a buyer of bonds in the open market but now they are going in the opposite direction. They have a balance sheet worth over $8 trillion, and they want to reduce it. Some say that they should just wait till the bonds mature. Instead the Feds are expected to sell $100 billion in treasuries in 2022 Q4. Even now there are signs of liquidity problems in the bond market. It is prudent to expect rates to keep rising. People complain about a 6% mortgage rate. I paid 11% on my mortgage in 1985.

Carter Braxton Worth is an American financial analyst and stock market strategist. Each year since 2008, he has appeared on institutional investor's All America Research Team, ranked as one of the Top 3 technical analysts on Wall Street. On 9/16/22, on CNBC, Carter predicted that the S&P 500 will go down to 2500! On 9/30/22, the S&P500 ended at 3585. Imagine that! I have already made a lot of money on buying and selling put options on the S&P500 (SPY). Imagine the opportunities it will create for us to short sell with put options and make money! When you combine stocks/ETFs and options, there are so many ways to “play” this game. For a moment, let us assume that Carter Worth is correct and the S&P500 will go down to 2500 (SPY to 250). As of 9/30/22, SPY put option expiring 12/16/22, is priced at about at $130 per contract (100 shares). Let us say that on 10/3/22, you write/sell a naked SPY put option that expire on 12/16/22, you will get $130 per contract. Then what happens? Prior to 12/17/22, if the S&P 500 go to or below 2500, the buyer of that naked option could exercise the option and you will have to buy 100 shares of SPY at $250 per contract. After that if S&P500 keeps going down, keep buying more. You can also buy puts as a hedge.

Experts say not to look at the previous high and assume that the stock will get back to that level. That is very true. Many years ago Boeing hit $400 and now it cannot even go over $150. However, it is a yardstick to make an estimate of the future potential. On 4/29/22, I added Netflix to our portfolio, in just 150 days, it is up 23.9% during this severe bear market!! I am not happy as I wanted it to fall further to buy more. What changed? Netflix will offer a free service with ads (like You Tube) and some say that they might generate more ad revenue than Facebook/Meta! I also bought Ford and AMD. 9/29/22 was a good day to buy AMD around $65. I was waiting for it to go to $60 to pull the trigger but $65 is good enough. Decades ago, when a Wall Street legend was asked how he made money he replied, “I never bought at the very bottom and I never sold at the very top”- if you try to do that, you will miss the boat. Even though I bought Ford and AMD (down about 50% from their previous highs) , I expect them to go lower so I also bought PUT options as hedges. With the expected recession of the century, the probability is high that AMD and Ford will fall significantly in the future.

Over the past few months, I have been using PUTS to short sell 20yr old US Treasuries on ETF, TLT. As interest rates go up, bonds fall. It seems like a “no brainer” but the bond market has been resisting interest rate hikes expecting the Feds to reverse it’s policy in 2023 and start lowering rates again but that probability is very low. Fed Chair Powell stated that he is more like Volker who kept on increasing rates (to 20%?)  rather than Arthur Burns who stop tightening prematurely in the 1970s. However, in 1980 Volker stopped tightening for a short period and inflation roared again so Volker kept on increasing rates for a long time till inflation came under control for a long period of time. Federal Reserve cannot openly say that they want to create a recession, but they know that it is needed to tame inflation. I bought PUTS on TLT on 5/11/22 at $575 per contract and sold them on 9/22/22 at $630 per contract!

DoubleLine Capital CEO Jeffrey Gundlach said the Federal Reserve should ease the pace of rate hikes as the economy is on the brink of a recession. The Fed on Wednesday raised benchmark interest rates by another three-quarters of a percentage point to a range of 3%-3.25%, the highest since early 2008. The central bank also signaled that will raise rates as high as 4.6% in 2023 before the central bank stops its fight against soaring inflation. “I don’t think they are going to be able to pull that off,” Gundlach said on the Fed’s forecast to hike rates to 4.4% by the end of 2022. “I think the economy is going to be showing signs of weakening.” “I do think the unemployment rate is going to go up and I do think we’re headed to a recession, and I think the Fed should have pasted this differently,” Gundlach said. “But now they’re so committed to this 2% that I think the odds of a recession in 2023 are very high. I mean, I would put them at 75%.” (Gundlach “Bond King”, CNBC, 9/21/22)

‘Get out of these distorted markets’: Mohamed El-Erian (Bond King) just issued a dire warning to stock and bond investors — but also offered 1 shockproof asset for safety. Due to rampant inflation, holding cash may not be a wise move. (Higher and higher price levels erode the purchasing power of cash savings.). That’s one of the reasons many investors have been holding stocks and bonds instead. But according to Mohamed El-Erian — president of Queens’ College, Cambridge University, and chief economic advisor at Allianz SE — it might be time to switch gears. “We need to get out of these distorted markets that have created a lot of damage,” the famed economist tells CNBC. “What we have again learned since the middle of August, is that [stocks and bonds] can both go down at the same time,” he says. “In a world like that, you have to look at short-dated fixed income, and you have to look at cash as an alternative.” (Jin Pang, Yahoo Finance, 9/12/22)

 

China (PRC)  is the 2nd biggest economy and they are in big trouble. I always believed that the hype was greater than reality when it came to the PRC.  Modern PRC was built on stolen intellectual property from the west. 25.7% of their economy comes from the construction industry. Some of the biggest companies in that industry are close to bankruptcy. Their banks are having a problem staying afloat. As Steve Weiss said on CNBC on 9/29/22, this industry in China is collapsing now. We still do not hear about the “Chinese debt traps”; these are billions of dollars given by the PRC to third world countries that are run by corrupt politicians who steal most of the money and these poor countries cannot afford basic necessities as all foreign exchange has to be spent on loan repayments to China (PRC). Recently the PRC was reluctant to write off a part of the money owed (as done by Europe) by Sri Lanka stating that it would lead to a precedence and about 20 other countries will ask for the same benefit. About 10% of Sri Lanka’s external debt is owed to China (PRC) but there are many African countries where it is 40% to 50%! I firmly believe that this too will drag down the Chinese economy. It will also have a detrimental impact on countries like Malaysia and Indonesia that export to support the construction industry in China. How can we benefit from this? During the past few years some Wall Street firms were leaving the US for Asia due to our problems, and I believe that was very foolish. I started short selling the EEM ETF (mainly China -Emerging Markets) with put options. The put options I bought on 9/23/22, is up by 8% already while the put options I bought on 1/18/22 is up by 15% and these options expire in 2024.

Recently the Fed Chair Powell stated that raising rates will hurt people now, but it will end up with most Americans being able to afford housing in the future. It seems counterintuitive but it is 100% true. As I have been saying for a long time, with the trillions of dollars “printed” by the Federal Reserve (nothing at all due to stimulus money given out), many billionaires and Wall Street funds bought houses all over the country and kept raising rents at an astronomical level. They also used margin to buy more. Fed action will kill those activities.

When the Federal Reserve lower rates some complain and when they raise rates to curb inflation, people complain but they do it for the benefit of our long-term economic health. This inflation that is quickly turning to hyperinflation should be crushed at any cost soon or everyone will end up in big trouble. Powell stated that he is more like Volker than Arthur Burns and that is good for the US-little pain now followed by a long period of prosperity (30 years?) with a rate of inflation below 2%.

I have been saying that cutting taxes (mainly for the rich) is inflationary and increasing taxes for the rich is deflationary- and some of the taxes collected could be used to help the middle class and the poor. Last week what happened in the UK was amazing! This is something that Democrats can use against the Republicans!  The new right-wing government in the UK reduced taxes which brought their bond market to a near collapse. Even though it is rare, the IMF warned the UK government that this move  is not only inflationary, but it will benefit the rich at the expense of the poor. Soon after the tax cut was announced, the UK currency (pound) crashed! Bank of England (BOE) had to reverse its actions and start buying bonds as they were afraid that pension funds would go bankrupt! The UK pound is 12% of the dollar index and soon after the BOE bond purchase, the US dollar dropped slightly after rising sharply for months.

Have a great month! In the month of Halloween, do not be scared!! Let us hope we will have 60% to 90% crash (from the previous highs)!!

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." Whether or not Rothschild actually uttered the famous line, it reveals an important truth about betting against market psychology.

Have a Great Month!

September 8 Post

Hi Again,

What is the best way to make money in a market that is going nowhere? Select a

stock that has upside potential and buy the stock in 100 share increments and for

each 100 shares, write/sell call options (covered calls). Right now, natural gas

stocks are red hot (till recently)due to the Russian invasion of Ukraine and Europe

trying to get enough natural gas for the winter. I hold many stocks in this industry.

One of them is Range Resource Corp (RRC). On 8/26/22, I wrote (sold) call options

on the shares I hold at a price of $169 per contract. On 8/26/22, RRC was at $34.

The covered call I sold had an expiry date of 9/2/22 (7 days) and a strike price of

$37. On 9/1/22, RRC was at $32 but I bought back the option at $5 per contract,

making a profit of $164 per contract! I still hold the stocks and one day, I will sell it

when it is prudent. All experts agree that natural gas stocks will continue to go

higher and higher; and I disagree. I am a contrarian. If we get to know that Europe

and the US are expected to have mild winters (or something of that nature), natural

gas prices will come tumbling down (as they have been doing for the past few days)

. On 9/1/22, after selling my covered calls (expiring 9/2/22) on RRC, I sold covered

calls on RRC (strike price $35, expiring 10/21/22-in another 51 days) to repeat the

same process. On 9/7/22, the covered call options I sold for $213 has gone down to

$115! If I decide to buy it back that will get me a 46% profit in just 7 days! I also

have some long term puts on RRC as a hedge against a big fall in RRC price.

Pardon the pun but there are so many “options” with “options”!!

When the “fear gauge” (VIX) goes down to 20 or below, it is time to short sell the

market and when VIX goes to about 30, it is time to buy the market-this is all for

the short term. On 8/17/22, VIX was around 20 so to short sell the market I bought

put options on the NASDAQ on QQQs. On 8/17/22, I bought QQQ put option with

a strike price of 200 and expiry date 1/20/23 for $119 per contract. On 9/1/22, VIX

was at 27 so I sold my put options at $214 per contract with a 79% profit in 15

days!!

In investments and trading what is important is to have valid strategies and then it is

all about your discipline!

What is happening in the market right now? There is a tug of war between 2 camps.

The camp that is having a major impact on the market is under the impression that

the Federal Reserve will not be able to keep their word and keep raising rates for a

long time without lowering rates in 2023. They say as the Feds pivoted within the

past 12 months, and they will pivot again and start lowering rates in 2023 as

inflation is already on the decline. However Fed Chair Powell stated that he is

more like former Fed Chair Volker (who raised rates to 15% in the 1980s to kill

inflation for 30+ years) than former Fed Chair Arthur Burns who stopped raising

rates prematurely in the 1970s which led to stagflation and hyperinflation.

Feds will not buy bonds in the open market for the first time in 20 years and they

will start unloading some of their bonds to decrease their balance sheet. In 2018

when they tried to do it, they had to come back and buy bonds to keep the bond

market liquid. This too will raise rates. (Josh Brown, CNBC, 8/10/22)

Monetary policies are more effective than fiscal policies. Mathematical economics

can prove that. When the Feds lower rates and the economy benefits Presidents try

to take the credit and when the Feds tighten monetary policy to lower inflation,

Presidents get wrongly blamed. Even though some inflation was caused by stimulus

payments, 95% of inflation was caused by too lenient monetary policy for an

extended period of time coupled with huge tax cuts for the wealthy and companies

that used tax cuts for stock buybacks (even Trump agreed that this is what

happened) . As Fed Chair Powell stated 1/3 of inflation is due to housing prices and

rent. Many Wall Street firms were buying cash down (leaving out the people able to

buy with mortgages) and then renting those houses and increasing rents over 100%

every few months. Monetary tightening is already paying off. California governor

wants to enact laws to protect people from these Wall Street firms-most probably

those announcements will come when we get closer to the election day. Same kind

of policy changes were made in Canada and New Zealand. Per Tom Lee on CNBC

(8/26/22), housing inventories and used car inventories are at the highest level since

2007. After the Feds tighten or lower rates, it takes 6 months to see the impact on

“main street”(economy).

What could change the situation and drive the market lower? Unexpected

geopolitical events could do that. If China (PRC) invades Taiwan, that could topple

markets all over the world. If Putin wins the war in Ukraine, he is not going to stop

there; and if Putin invades Poland and other countries, that could create more

problems for the world. There is a huge financial crisis brewing in China (PRC)

which will have a domino effect on all other countries. Our 2007 housing/banking

crisis is nothing compared to what is going on in China. PRC homes worth $60

Trillion USD (more than all US stocks) have gone down 40% in 2022. Countries

like Malaysia providing resources to the PRC will see their economies going down

with the PRC.

Lately the media has been very pessimistic about the natural gas situation in

Europe; however natural gas stocks in the US have been going down recently.

For example, RRC was $35 on 8/22/22 and on 9/6/22, it is down to $31. EQT was

at $50 on 8/29/22 and on 9/6/22, it is down to $46. Cheniere Energy was at $171 on

8/24/22 and on 9/1/22 it was down to $156. As I stated before I have been making

money on writing covered calls on RRC. Fortunately, as a hedge, I also bought

some puts on RRC as a hedge and that is up 18.56 in 11 days! So I am making

money on the covered calls and on the puts. On covered calls, when the underlying

stock price go down, you can buy back to calls you sold previously for a profit. On

9/1/22, I sold covered calls on RRC (strike price $35, expiry 10/21/22) at $213 per

contract and in just mere 6 days, those are priced at $175 but I will hold this longer

to obtain more of a gain.

Per CNBC as of 9/6/22, not only UK but all of Europe face a big banking crisis due

to the natural gas crisis. Most utilities in UK and Europe have been buying natural

gas on the spot market and buying with margin (over $1.5 Trillion at risk) and this

is heading towards a calamity. This could be good for the US in the long run.

Citibank announced on 9/6/22 that the European energy crisis will impact the whole

world. Politically, if European voters follow Fox News and elect politicians who

will support Putin, then Putin will easily win the Ukraine war and then take over all

of Europe. If we lose our status in the world, that will hurt US companies as 70%

revenue of most big US companies come from overseas. If Russia and China (PRC)

rule the world, they will get all countries to stop imports from the US. That is

according to economic history. Due to covid shutdowns etc., the demand for natural

gas in China (PRC) has gone down. Per a report on CNBC on 9/6/22, when a

shipment of natural gas or oil is loaded in to a tanker at a US port for a purchase

made by China (PRC), that shipment belongs to China even before the tanker leaves

the US port! Observing satellite tracking devices, they have found that China (PRC)

is taking liquid gas directly from the US to Europe and for what they paid less than

$20 in the US, they are selling it over $50 in UK and Europe!

Some more interesting information per CNC 9/6/22-9/7/22:

 Atlanta Fed President stated that “we created inflation and we have been

reducing the rate of inflation”. All prudent economists knew that anyway.

Monetary policy is the best way to bring down inflation but fiscal policies can

help too. Increasing tax rates for the richest Americans and corporations who

pay next to nothing in taxes and spend trillions of dollars on stock buybacks

too will be deflationary.

 When Obama wanted to extend tax concessions to the solar industry, the

Republicans got Obama to agree to let US export natural gas. Trump would

have done it anyway. The reason we did not allow the export of natural gas is

that we did not want US natural gas consumers to freeze to death in the

winter. Now that is a real possibility. US Dept of Energy warned US energy

companies to keep enough natural gas to support the domestic market. Most

countries to protect domestic consumers ban export of certain items. Example

1- China (PRC) has banned export of chemical fertilizer. Example 2- India

recently banned the export of wheat.

 In 2022, the US exported more energy resources to Europe up to August 31,

2022, than we did in all of 2021.

 20% of US energy comes from Nuclear (clean energy). Several CEOs in the

energy sector were on CNBC and they all stated that the recently passed

inflation reduction act will help the US immensely. Germany and UK too will

rely more on nuclear energy now.

 Within the past 12 months, the US budget deficit declined by $1.7 Trillion.

We are sure to have a volatile market over the next few months as September is

the worst month for the stock market; and all the major crashes happened during

the month of October.

Have a great month!

Fernando

August 2 Post

Hello Everyone!

Due to the current bear market our portfolio has been going down for months but

our nibbling at stocks that suffered a major loss is already paying off. Look at our

scorecard- our Netflix holding is up 18% in 3 months! Some are suggesting that

Apple might end up buying Netflix; which they should have done years ago.

Google prices reflect the 20 to 1 split of 2022.

For the past 40 + years I have heard that to consider fundamental analysis instead of

technical analysis is like putting the cart before the horse. A few months ago the

market technician and astrologer Merriman (who has a school to train technicians

and who has been in the business for more than 50 years) stated that we should

expect a big rally in the equity as well as the credit market soon; and this rally will

go on till early Fall and then expect the two markets to fall significantly. Even

though it seems unreal, the first part of that prediction has already happened. Who

thought the bonds will go higher and bring down the yield when the Federal

Reserve is increasing interest rates aggressively to combat inflation which is at a 40

year high? ! EFT, :TLT” tracks the 20 year Treasuries and it was at 108.81 on

6/14/22 and then on 7/22/22, it was at 118.55! Even though I did not sell my put

options, I suffered a “paper loss” on my puts that expire in 2024. I think the rally

was due to a short covering as some expect the Feds to go slow on increasing rates

and may even start lowering rates in 2023. On the surface, it looks like wishful

thinking. There are many on Wall Street believe that the market bottomed on

6/16/22 when the S&P 500 hit 3,666. Then it rose to 3,998 on 7/21/22. The biggest

reason for this shift is that most bond gurus believe that the economic slowdown

experienced by all countries will force the US Federal Reserve to stop increasing

rates and in a few months start lowering rates. I do not agree. To me that is wishful

thinking. Interest rates have to go up much higher to tame this inflation demon or

else inflation will destroy everything,

The bulls took the lead in the tug of war for control of the trend in world stock

indices last week as major resistance was broken in many markets. This was

accomplished even as the European Central Bank raised rates twice and the Feds

continues to suggest another large rate increase next week. With Jupiter in Aries,

we expected investors and traders to regain their confidence and become more

aggressive buyers than sellers. The market was ripe for a turnaround. The

fundamentals will catch up later to these leading indicators. They almost always

lag. (Merriman Market Analyst, 1/25/22).

Market is behaving in this unreal manner as they expect the Feds to engineer a soft

landing but even though it is possible to see a soft landing the probability is close to

0 as it has never happened before and the whole world is going in to a deep

recession and this is just the beginning. On 7/11/22. Barron’s had an article titled

“The recession canary on the used-car lot: Repos are exploding”! Encore Capital

(ECPG) which is a collection agency on bad car loans was at $55 on 6/16/22 and on

7/26/22, it ended at $71! Forget housing and cars, on 7/26/22, CNBC reported that

AT&;T is having a difficult time collecting on mobile phone bills and most people

rely on their phones for everything. The Federal Reserve Bank has been saying that it wants to reduce

their balance sheet by unloading their treasuries in the bond market. I think it is a perfect time for

them to do that right now and let me explain. Mortgage rates are connected to the

treasury yields and even after the two 75 bases point interest rate hikes (meant to

increase rates to combat inflation), the bond market has been going up and thereby

reducing the yield. I think the bond (and the stock) market is acting irrationally so

the Feds could start dumping their treasuries while reducing their balance sheet,

they can get the rates to go up. I have been wondering about this for the past few

weeks. Hopefully it will get the attention of the Feds.

The Fed usually shrugs off moves in the stock market, but the turn in equities has

also coincided with an alarming turn in bond markets as well — which could brew

trouble for policymakers. Longer-term interest rates, which the Fed does not

directly control, don’t appear to be getting Fed Chairman Jerome Powell’s message

on further rate increases. And that could potentially dampen the intended impact of

raising interest rates, which is to help slow demand to slow inflation. “We worry

that some in markets may be seeing the pivot they want to see, as opposed to a

transition from one phase of policy to another that is naturally more data-

dependent,” Evercore ISI analysts wrote on Thursday. Since the Fed’s June 15

meeting, the yield on the 10-year U.S. Treasury has fallen by over 0.70%, to just

below 2.70% as of Thursday afternoon. As a benchmark for interest rate products,

the decline could make longer-dated credit products (i.e. business loans) less

expensive than they were a month ago. Mortgage rates, often the largest longer-

dated debt for households, have similarly declined since mid-June. The average 30-

year fixed rate mortgage rate has dropped 0.5% over the last five weeks, standing at

5.3% as of Thursday. The combination of higher stock prices and lower longer-term

borrowing costs makes for easier financial conditions, potentially steady demand

and complicating the Fed’s efforts to lower inflation. “[T]he substantial easing of

financial conditions that occurred in response to [Wednesday's] meeting will

ultimately be an unwelcome development for the Fed as it seeks to achieve price

stability,” Deutsche Bank analysts noted on Thursday morning.(Brian Cheung,

Yahoo Finance, 7/29/22)

Most believe that big market crashes happen when we get hit with the unexpected

as money managers can always hedge against the expected downturns. Many try to

imagine what might cause the next crash. Jim Cramer has been saying that if China

(PRC) invades Taiwan that could create a huge market crash. When the US Federal

Reserve raise interest rates, other central banks have to raise rates or else they will

see a flow funds from their countries to the US. When the US Federal Reserve

announced their intention to raise rates, even the President of China (PRC)

objected. When the Director of USAID blamed the Chinese (PRC) “debt trap” for

the collapse of the Sri Lankan economy, the Foreign Ministry of the PRC blamed

the US Feds for increasing rates. For years, the US did not raise rates as it will

negatively impact all countries but now they have no choice as they have to tame

the inflation problem at home and overseas. This is the reason why the dollar is at a

very high level against most currencies and came close 1 to 1 with Euro. It also hit

an all-time high of 1 USD for 80 Indian Rupees. This is just the tip of the iceberg.

On 7/14/22, some on CNBC were saying that unknown to most, an international

currency crisis is brewing. I agree. China (PRC) has always been very secretive and

if they have done business like most western countries, they would have folded like

a house of cards decades ago as the hedge fund manager Soros predicted decades

ago. Even 30 years ago it was stated that PRC banks even do not keep track of what

they owe. Have you heard of the recent banking crisis in the PRC that was called a

“China’s Lehman Brothers Moment”. On 7/25/22, Barron’s paper screamed, “

China’s Property Crisis Isn’t Over Yet. Developers’ Bonds Are Taking a Hit”. The

implosion of China Evergrande Group (ticker: 3333.Hong Kong) last autumn, and

a cascade of defaults that followed, smashed those cozy assumptions, and jacked up

those yields to double digits for most privately owned builders. The “mortgage

boycott” currently sweeping China has driven a fresh bond selloff. Investors are

wary of dip buying, however. “Before the boycott, there was a view that we should

be closer to the bottom,” says Tracy Chen, a portfolio manager for global credit at

Brandywine Global. “Now we see developer stress hasn’t ended yet.” The so-called

boycott is actually a series of “open letters” posted by citizens who have paid for

apartments but not received them. Developers’ financial problems have delayed or

halted construction. At last count, these protests encompassed 300 projects in 80

cities, more or less. Some 80% of Chinese housing is built on this prepayment

system. The boycotts remain in a “very buoyant” viral phase, and further spread

could threaten China’s banking system, Chen says. All developers will suffer as

buyers’ faith in the prepayment system erodes, Loh adds. “Any hint of distress, and

they’re finding it very hard to sell property,” he says. That fund may not be

forthcoming because Xi rather likes seeing highflying private developers humbled,

and scrambling for help to state-owned competitors, says Michael Kelly, head of

multiasset strategy at PineBridge Investments. The state builders’ current market

share of around 30% is sure to increase. “Xi, in his heart of hearts, doesn’t like the

business model that transferred public land to private hands for development,”

Kelly says. “It’s quite challenging at this point to evaluate who will have cash

available and accessible to offshore bondholders,” Loh says. “As a result, we are

particularly cautious in the sector.”(Craig Mellow, Barrons, 7/25/22)

On 7/26/22, The IMF announced that the world is heading towards the worst

recession in 50 years! Now we can understand why the bond market is reducing

bond yields while the Federal Reserve increased interest rates by 1.5% in 2 months!

As you can see from our scorecard, the price of Intel is 21% below our average

cost. I will monitor this and purchase more in the future. I expect the price to

decline significantly over the next 6 months but would be able to make a significant

profit within 5 years. Time to sow is now and time to reap is about 5 years away!

WION is an Indian multinational English news channel headquartered

in New Delhi. It is owned by the Essel Group and is part of the Zee Media. The

following is from a report on WION on 7/15/22:

 People in China (PRC) are defaulting on their loans in 86 cities (46,00 home

buyers)

 PRC home buyers have declared “mortgage strikes” on 230 projects.

 PRC debt level of $9.2 Trillion USD causing problems for the leaders in

Beijing

 Political leaders of PRC is asking banks to disclose the true nature their debt.

 The next global financial crisis is brewing in China (PRC)

 In the Hunan province banks froze assets and many people held protests

(which were crushed by the government) as they had no way to withdraw

funds from their bank accounts

Embattled Chinese real estate giant Evergrande is expected to deliver a preliminary

restructuring plan this week, following the exit of two bosses. The firm says its

chief executive and finance head have resigned, after an internal probe found that

they misused around $2bn (£1.7bn) in loans. Evergrande has more than $300bn in

liabilities and defaulted on its debts late last year. The crisis has spooked traders

who fear contagion in China's property sector. On Friday, Evergrande said it found

that chief executive Xia Haijun and chief financial officer Pan Darong were

involved in diverting 13.4bn yuan ($2bn; £1.7bn) in loans secured by its property

services unit to the wider group. (BBC Business News,

Have a great month!

Fernando

July 4 Post

Hi Again,

On 6/30/22, the market (S&P500) ended as the  worst half year since 1970!

When interest rates go up, bonds and other markets go down. This is why in the 1980s, for his finance doctoral work, Martin Zweig came up with the term, “don’t fight the feds”. Jamie Dimon as the CEO of JP Morgan (who  can see a shift in the economy) warned of  a hurricane coming”. One person who has been doing this is Tom Lee. He was being super bullish for years and now he realizes that he was wrong as he recently said on CNBC ,”Now I have a lot of eggs on my face”. Years ago, Steve Weiss used to be his boss in the world of money management. On 6/14/22, Steve Weiss stated , that he will get back in to the stock market when Bitcoins go down to zero and there was never a time when Bitcoins had any real value and it is nothing but fraud. I agree 100%! I keep short selling and making money on cryptos by buying put options on RIOT and BITO. On 6/13/22, Jim Cramer stated that ‘NFT craze was a hoax and crypto banks are freezing as they are losing money”.

For the past 30 years, the Federal Reserve was heavily involved in the bond and mortgage market and some say that they hold 30% of all US Treasuries issued. Now as they increase rates and unload their balance sheet items, we will see bond rates and mortgage rates going up. If you watch TV, you will see all those commercials where companies offer to buy any real estate you want to sell as they assume real estate prices will continue to rise forever as they did in 2007. When these companies go bankrupt, real estate prices will go down and people will be able to afford housing again. On 6/8/22, CNBC reported that mortgage demand has dropped to its lowest level in 22 years! I should have started this months ago but “better late than never” so I have been shorting (with put options) treasury/bond funds and also real estate ETFs. For example, the Real Estate ETF IYR, put option expiring January 2024, with the strike price $50, went up by 145% within 6 hours on 6/13/22!  Have you heard of “Rocket Mortgage” (RKT)? On 6/14/22, I purchased a put option on RKT that expire January 2024 with a strike price $8 for $140. On 6/14/22 morning RKT was at $7 and I expect RKT to go below $3 and go insolvent in 2022.

Rick Santelli joined CNBC as on-air editor in June 1999, reporting live from the floor of the Chicago Mercantile Exchange. His focus is primarily on interest rates, foreign exchange and the Federal Reserve. Rick has been the bond expert on CNBC for more than 25 years. On 6/29/22, Rick was saying that recently bond rates have been going lower while all central banks are in the process of raising interest rates and he added, “the market is not getting it”. I totally agree. I believe that this gives us an opportunity to short sell the bond market with puts on bond ETFs like the ETF, TLT.

Per market astrologer/analyst Merriman who has been advising major brokerage houses for 50+ years (yes, he is very old) states that he will not get bullish on the stock market till the Dow (DJIA) go below 18,000! After being around 33,000 recently, DJIA fell to 30,000 on 6/14/22. On 6/12/22, he predicted a major decline for the market followed by an immediate “dead cat bounce”.

With the S&P 500 down 21% year-to-date, the situation for stocks is pretty grim — but according to legendary investor Jim Rogers, it’s just the start. “This has to be the worst bear market in my lifetime, which means it will go down a lot and it will last a long time,”. Rogers knows a thing or two about making money in turbulent times. He co-founded the Quantum Fund with George Soros in 1973 — right in the middle of a devastating bear market. From then till 1980, the portfolio returned 4,200%, while the S&P 500 rose 47%.(Jing Pang, Moneywise,6/21/22)

Barron’s has been the #1 newspaper for the past 50+ years. On the 6/20/22, there was an article titled, “Crypto Winter Could Become Crypto Hell”.

When a traditional bank fails, a SWAT team of regulators swoops in, winding it down in secret and preventing a panic that could spread throughout the financial system. In cryptocurrency banking, the demise happens in full public view—and there is no regulatory SWAT team to keep the markets calm. That story unfolded this past week as Celsius Network, a major crypto lender that had more than $11 billion in deposits, froze withdrawals. “Celsius has billions in liquidity,” CEO Alex Mashinsky said publicly on Friday, June 10. Less than 72 hours later, Celsius halted all withdrawals, swaps, and transfers between accounts. No investors have been able to get their money out since then. And there is nothing like the Federal Deposit Insurance Corp. in crypto to repay depositors in an insolvency scenario. Crypto is having a “Lehman moment,” a shattering of confidence triggered by plunging asset prices, liquidity freezing up, and billions of dollars wiped out in a few scary weeks. What started with the demise of a stablecoin called TerraUSD- wiping out $60 billion—has now spread to the potential failure of a giant crypto bank. That, in turn, is raising questions about how far the contagion will spread and whether crypto will survive as a viable asset class. “Is there contagion? Of course there is,” says Chris Matta, president of 3iQ Digital Assets, which manages about $2 billion of crypto investments. “It’s just a question of who’s going next.” What the industry calls a crypto winter is looking more like a crypto hell. Bitcoin fell 30% over the past week and is now down 70% from its peak, trading around $21,000. Ether, the second-largest token, has dropped 77%, to $1,080. Overall, the token market has lost $2 trillion of value since last November, going down to $900 billion. The pain is spreading as companies that had projected unbridled growth suddenly retrench. Coinbase Global the big, publicly traded exchange, said this past week that it plans to lay off 18% of its workforce. BlockFi, another crypto lender, announced job cuts, as did Crypto.com, an exchange touted in ads by Matt Damon with the motto “Fortune favors the brave.” Other crypto platforms are freezing up. A high-yield lender called Finblox capped withdrawals and halted interest payments as a hedge fund backing the company withdrew support. Babel Finance, another lender, suspended withdrawals on Friday, citing “unusual liquidity pressures.” Higher costs of capital are pushing down equity valuations. And nowhere is the pressure being felt more than in crypto—a tech area teeming with questionable projects and speculative excesses. If nothing else, the Celsius debacle should dispel illusions that crypto is immune from the contagion effects that plague the traditional financial system. While crypto enthusiasts say the industry is “decentralized,” in reality it’s dominated by a handful of major investors and platforms. As in 2008, when one major company teeters, the pain spreads fast. The difference now is that blockchain transactions are public; investors can watch the train wreck in real time. Financial regulators may be quietly gloating. Lenders like Celsius have long been under fire from federal and state regulators who argue that their high-yield products should be banned for use by retail investors or registered as securities. “You have companies out there saying, ‘Come hither, give us your hard-earned money and we’ll get you 17% returns or 19.5% returns or 7.1% returns,’” said Securities and Exchange Commission Chair Gary Gensler at a conference this past week. “Frankly, in this interest-rate environment, one has to wonder where those returns are coming from.” (Barons, Crypto Winter..,6/20/22)

More on cryptos! I have been warning about this from day 1!

Elon Musk sued for $258 billion over alleged Dogecoin pyramid scheme. Elon Musk was sued for $258 billion on Thursday by a Dogecoin investor who accused him of running a pyramid scheme to support the cryptocurrency. In a complaint filed in federal court in Manhattan, plaintiff Keith Johnson accused Musk, electric car company Tesla Inc (TSLA.O) and space tourism company SpaceX of racketeering for touting Dogecoin and driving up its price, only to then let the price tumble. "Defendants were aware since 2019 that Dogecoin had no value yet promoted Dogecoin to profit from its trading," the complaint said. "Musk used his pedestal as World's Richest man to operate and manipulate the Dogecoin Pyramid Scheme for profit, exposure and amusement." The complaint also aggregates comments from Warren Buffett, Bill Gates and others questioning the value of cryptocurrency. Tesla, SpaceX and a lawyer for Musk did not immediately respond to requests for comment.(Jonathan Stempel, Reuters, 6/17/22)

There is another aspect to cryptos/fintech people do not understand. China (PRC) was initially very supportive but later they realized that this could lead to big problems for governments. Sri Lanka is having a huge problem as the country and the government has no foreign exchange to import essentials as food and fuel. One big problem is that when foreign exchange comes through the traditional banking system, the central bank (on behalf of the government) gets access to those “dollars” so now the government is going to change laws to make sure that foreign exchange flow through the traditional banking system. On 6/17/22, CNBC reported that Dubai based  Crypto Fund is close to insolvency. What will happen to Miami? Miami has been advertising itself as the first Bitcoin/Crypto city in the world! Most gamblers live in China and Asia so most of crypto trading takes place in Asia.

However, I believe that Bitcoins and Cryptos are close to a temporary bottom so we might get a short-term trading opportunity. However technical analyst Tom De Mark states that the technicals are so broken, it could decades to regain previous highs. I have my doubts.

Then on 7/1/22, CNBC announced that yet another crypto broker, Voyager Digital froze assets of their customers! Surprise! Surprise! Billionaire Mark Cuban for years used to say Bitcoins/Cryptos were the “gold of golds”. He was putting millions in to imaginary NFTs. It is economics 101 that when the central banks (ie US Federal Reserve) go on a money printing spree, it creates inflation. Now experts say that as long as the Feds are raising interest rates, bitcoins cannot go up. Rising interest rates will increase the confidence in the US dollar.

On 7/1/22, CNBC had a program called “Crypto Night America”. According to that program Bitcoins/Cryptos have been operating like a big ponzi scheme!

However I believe we are close to a “dead cat bounce” in Bitcoins/Cryptos. “When everyone gets fearful, get greedy” or “buy when there is blood on the streets”.

We can easily go from one extreme to another. Now all over the world, people complain about high energy prices.  Remember when the price of a barrel of oil went negative for the first time in history?

The following is from 4/21/20:

“The price of a barrel of benchmark U.S. oil plunged below $0 a barrel on Monday for the first time in history, a troubling sign of an unprecedented global energy glut as the coronavirus pandemic halts travel and curbs economic activity.” Such a steep drop in the oil benchmark prompted strong reactions beyond trading floors. The price of a barrel of crude varies based on factors such as supply, demand and quality. Supply of fuel has been far above demand since the coronavirus forced billions of people to stop traveling. Because of oversupply, storage tanks for WTI are becoming so full it is difficult to find space. The U.S. Energy Information Administration said last week that storage at Cushing, Oklahoma, the heart of the U.S. pipeline network, was about 72% full as of April 10. “There’s no available storage anymore so the price of the commodity is effectively worthless,” said Bob Yawger, director of futures at Mizuho in New York. “So when it’s minus a dollar, they’ll pay you a dollar to get it out of there.” (Leita Kearney, Reuters, 4/21/20)

A few weeks ago when everyone was expecting higher energy prices, I wanted to short sell energy with puts on XLE and XOP but I was too late to the party. We are expecting a global recession and energy prices go down when we expect a recession.

Per Fed Chair Powell’s testimony in congress, they take rent and housing costs as 1/3 of CPI (inflation gauge). Inflation has been a big problem for 35% of US householders who rent housing. Per NBC Nightly News 30% of all houses are bought by Wall Street companies by paying 100% cash! Homeless population is at 500,000 in the US; and growing in the US. The Federal Reserve has stated that it wants to take these speculators out of the market (by bankrupting them?) and then lower rates so the middle class people can buy houses again. Companies like Zillow lost a lot of money when the prices of their inventories went down. Much more yet to come. Zillow stock was at $197 on 2/8/21 and on 7/1/22, it was below $34! I wish I bought some puts on 2/8/21! Now these Wall Street companies are buying these houses and renting them and increasing rents 100% to 1,000% per year! Recession will make renters to look for other alternatives and states like California should have more rent controls to help the renters. This is a worldwide problem. Canada and California are considering banning or controlling these “Wall Street/Money Manager” transactions. New Zealand resolved their housing problem by banning “foreigners” from buying housing in New Zealand.

Inflation is expected to peak soon; however. getting it under 2% is going to be a challenge. The Federal Reserve and others look at commodity prices to look at future possibilities for inflation. In March 2022, oil (WTI) was at $123 per barrel but on 6/23/22, it was down to $105. Price of lumbar has fallen 48% from 6/1/21 to 7/1/22. Believe it or not, in the commodity markets, even with the Russian invasion of Europe, price of wheat has fallen 4.77% over the past 4 months. On 6/6/22 Natural gas was at $9.14 and on 6/30/22, it was at $5.44. I am buying more stocks related to Natural Gas as we get close to winter, with no Russian Nat Gas for Europe, this will surely go much higher. Sugar was at $20 on 4/1/22 and on 6/30/22, it was at $ 18. Expecting a bad global recession is the worst thing that can happen to commodity markets. In June 2022, most experts on Wall Street expected to see signs that inflation has peaked but that could happen in 2022.

As an expert money manager stated on CNBC, “First the stocks bottom, then corporate earnings bottom, then the economy bottoms”. How can we translate that in to a strategy for ourselves? We have to start “nibbling” or buying little at a time now and keep buying more as prices decrease. Beware of FOLO! What is FOLO? Fear of Losing Out! Or else, you will put most of your money in now and lose it all soon- “like catching a falling knife”. It is better to keep away from companies who have been losing money as they have to pay more to borrow to stay alive (if that is feasible). Also some believe that when the big players like Apple, Microsoft, Google, Amazon go down by about 50% from their previous highs, that too is a sign that a bottom is close. The market (S&P500) peaked on 11/2/2007 at 1509 and fell till 2/27/2009 with a bottom of 735 (more than 50%). Then it peaked at 4682 on 11/12/21. We cannot predict a bottom but if we can get close, within the next 5 years, we will have terrific gains on our portfolio- probably!

Have a great month!

Fernando

June 6 Post

Hi Again,

Are we headed for a recession?  Our portfolio is down 31% in 7 months; welcome to a bear market! Technically we had one quarter with negative growth so if we have another quarter with negative growth, we will be in a recession.

 Jamie Dimon (CEO, JP Morgan) warned investors to prepare for an economic “hurricane” as the economy struggles against an unprecedented combination of challenges, including tightening monetary policy and Russia’s invasion of Ukraine. “That hurricane is right out there down the road coming our way,” the JPMorgan Chase & Co. chief executive officer said at a conference sponsored by AllianceBernstein Holdings Wednesday. “We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.” Dimon said at JPMorgan’s investor day in May that there were “storm clouds” looming over the US economy, but he said he’s since updated that forecast given the challenges faced by the Federal Reserve as it attempts to rein in inflation. “Right now it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle it,” Dimon said (Blakewll & Dickson, Bloomberg, 6/1/22)

“The process of getting inflation down to 2% will also include some pain”-Federal Reserve Chairman Jerome Powell. Inflows of stock exchange traded funds in April 2022-$2,8 Billion, down from $76.2 Billion in March 2022. Growth in China’s trade fell to 3.9% in April 2022, down from 14.7% in March.  There was a 25% decline in mortgage originations in Q1 2022 from a year earlier. (Barron, 5/16/22)

Jeremy James Siegel (CNBC guest) is the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania in Philadelphia, Pennsylvania. Siegel comments extensively on the economy and financial markets. On 5/11/22, Prof. Siegel stated that (1) It would take about 6 months for us to see the full impact of inflation on the housing sector (2) The Federal Reserve should increase the interest rate by 100 bases points (1%) to show the markets that they are serious about combatting inflation and increasing confidence in the US dollar. That kind of move could create a crash in the market but then we can look forward to the end of this bear market. Assuming that real estate prices will never go down (as it happened in 2007/2008), many companies are buying real estate as they have too much cash on their hands. As we know from the past, scarcity can turn in to a glut overnight. Higher interest rates will make these speculators go bankrupt. For the first time in 20+ years, the Federal Reserve will stop buying mortgage backed documents. They should have done this last year. As Prof. Siegel states, even the Feds agree that they are way behind the curve. There is a difference between “inflation peaking” and “inflation under 2%(Fed target)”. However when we get signs that inflation has peaked, we are sure to see the bond market and the stock market (especially NASDAQ) rally and that will be an excellent opportunity to short sell the bond market via puts on the ETF, TLT (20 year Treasuries).

Well …. On 5/24/22, Prof. Siegel changed his story and that is because he got more data….

This is what Prof. Siegel had to say on 5/24/22:

·       The recent decline in money supply (created by the Feds) is the largest ever since 1962!

·       The Federal Reserve should go easy on increasing rates or we will have a very deep recession.

·       Inflation for 2022 is already baked in and the Feds should not try to slam on the brakes too heard due to inflation figures in 2022.

·       We had too my much economic stimulus (tax cuts etc.) under Trump and Biden.

·       His advice to the Feds, “You were too late to raise but don’t overdo it now”.

This is what Merriman (astrologer/analyst for 50+ years) had to say on 5/28/22:

·       Inflation has peaked (but getting it below the Fed target of 3% is long way off)

·       Instead of unloading their bonds to reduce their balance sheet, they should just wait and let their bonds mature and that is a better way to decrease their balance sheet.

·       The bear market will last for a while but we may have already seen the bottom of the stock market.

·       This short-term bear rally will last for a few more months.

What is “stablecoins”? Stablecoins are cryptocurrencies the value of which is pegged, or tied, to that of another currency, commodity or financial instrument. Stablecoins aim to provide an alternative to the high volatility of the most popular cryptocurrencies including Bitcoin (BTC), which has made such investments less suitable for wide use in transactions. In my opinion, this is a joke. Most probably it is a sales/marketing gimmick. There is nothing stable about stablecoins!

On 5/16/22, Barrons had a good article titled, “How stablecoins fueled the latest crypto crash”. The article started with the statement, “ Two major stablecoins fell below their pegs, highlighting growing risks of contagion from “crypto dollars” to broader markets. In that article, Stephanie Ouellette commented,” Once you are in the ecosystem, stablecoins allow you to act as though you have US dollars, when really you own crypto”. Stablecoin are designed to maintain a fixed value. Typically at $1 per token; but a fast growing “algorithmic” stablecoin called TerraUSD collapsed this past week to a few pennies on the dollar. This could shake the foundations of crypto. Stablecoins are the bedrock of trading and lending activities, providing liquidity to individual traders, funds, and market makers… (Jack Denton,Barrons,5/16/22)

As if Crypto investors don’t have enough to worry about, this past week, a 10-Q from crypto exchange, “Coinbase Global”, which had missed earnings estimates, suggested that customers could lose their assets if the company went bankrupt! On Tuesday evening, Coinbase CEO Brian Armstrong tweeted a clarification, “ We have no risk of bankruptcy” (Joe Light, Barrons, 5/16/22)

On 5/12/22, “Cryptos” (Bitcoin etc. – mostly stablecoins) were crashing and the stock market was falling hard but the bond yields were going down while the bond market was going up. My conclusion was that people/companies exiting other markets were going in to US Treasuries. If you buy a bond without getting in to a bond fund, you can wait and get your initial capital back. Over the next few months or years, interest rates will have to go up as the Federal Reserve is trying to curb inflation which is at a 40 year high. Therefore on 5/12/22, I bought more puts on TLT (to short the bond market) which seemed like a “no brainer” to me. On 5/13/22, the TLT puts I bought on 5/12/22 were up by 9% (in 24 hours)!

From day one I have been saying that Bitcoins/Crypto are dangerous-especially as a medium of exchange. Now more and more people are realizing that it is so. Statistics show that people in their 20s and 30s have 75% of their assets in Bitcoins/Cyrptos. That shows that they are being very naïve. Young questionable leader of El Salvador made Bitcoins their medium of exchange.  I had some put options on RIOT to take advantage of a possible bear market in Bitcoin etc. but I was right with the direction and wrong with the timing. In options one has to get the timing correct. Now you can see commercials how brokerage houses are offering Bitcoin as an investment tool for 401K retirement funds. It is a well-known saying on Wall Street that when the main stream media gets bullish, we should all be bearish and vice versa. A few weeks ago I saw a TV report on a 25 year old man who was saying that the Republican Party was going to be the party of Bitcoins and might even consider replacing the US Dollar with Bitcoins as we cannot trust the US dollar! Yet we can trust a software program that fluctuate wildly? Anthony Scaramucci is an American financier who served as the White House Director of Communications from July 21 to July 31, 2017. Scaramucci worked at Goldman Sachs's investment banking, equities, and private wealth management divisions between 1989 and 1996. Sacramucci, a big advocate of Bitcoins was very critical of Warren Buffet for saying that Bitcoins benefit criminals and tax evaders. Jamie DImon is one of the best bank CEO’s (J P Morgan) and he stated that they offer Bitcoins etc as they cater to the wishes of their customers but he is still very much against them. Buffet and Dimon have been expressing this view for years. On 5/12/22, Sacramucci was on CNBC saying Cryptos were overhyped! Really? People were buying houses etc. with Bitcoins! The US should have banned Bitcoins to stop or limit ransomware criminal acts. China (PRC) has limited the use of cryptos within China. On 5/12/22, CNBC announced that within the past 30 days, people invested in Bitcoins lost over $800 Billion and most of it was in the hands of people between 25 and 35! This is the lowest level of Bitcoin since December 2020 ! Youth and Inexperience!! Did anyone tell them about “diversification”? RIOT which used to move with the price of Bitcoin, was at $44 six months ago and on 5/12/22, it was at $7! On 5/9/22, I bought some puts on RIOT with a strike price of $3 (expiring 1/19/2024) hoping to make money with the final rush to Bitcoins and in 3 days, my puts were up by 10%! Their price is so low, it might get delisted soon. For years wall street experts were saying that Bitcoins has replaced gold as a hedge against inflation; really? I never believed it. Gold was never a hedge. There are TV commercials saying gold never goes down and it is a hedge against volatile stock markets. Really? Gold hit a high in December 1979 and thereafter it kept declining till October 2000 when it hit $448. I still expect Bitcoins to fall 90% from their all time high.” “Take a chill pill, stay long bitcoin, other cryptocurrencies like Algorand and Ethereum, and I think you’re going to be very well-served long-term in those investments, Scaramucci believes buyers need to look big picture when it comes to bitcoin, rather than asking what value bitcoin currently holds compared to a U.S. dollar”-when did Scarmucci say this? Not on 5/12/22; it was on 1/25/22! As I have been saying for years, Bitcoins will destroy millions of young people. There is nothing of value in Bitcoins compared to stocks like Apple or Microsoft  that could come back after a crash. I do not think we have bottomed as Apple and Microsoft have not gone down enough. Some say $120 would be a good low for Apple and some say it should be a $100. I think if Apple go to between $70 and a $100, we can assume that the broader market has bottomed. If Apple goes below $70, buying Apple will be like buying a “sure thing lottery  ticket”. All you have to do is to wait for 5 year or less. By the way, Warren Buffet is holding on to his Apple holdings.

Enjoy the volatile market! Volatility creates opportunities!

Have a great month!

Fernando

May 2 Post

Hi Again,

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." That time is getting closer!!!!

My put options on the bond market (TLT, HYG), Stock Market (SPY, QQQ, ARKK) have been doing well.  ETF QQQ that tracks NASDAQ, has been down significantly as those stocks do not do well when interest rates go up. On 4/4/22 I bought the put option QQQ with a strike price of $180 and that expire in December 2022; on the 4/29/22 close, this option was up by 89.67% in just 25 days!  It is too early to sell. I also have puts with strike price $160 so when the time is right, I will keep one and sell the other. ARKK ETF managed by Cathie Woods who is heavy in to NASDAQ high flyers were expected to fall significantly in a rising interest rate environment. ARKK puts expiring January 2023 with a strike price of $30, I sold on 4/27/22 after 30 days for a 118% gain. Since I had QQQ (NASDAQ) puts on September 2022 and December 2022, I sold the Sept 2022 puts on 4/26/22 morning when NASDAQ was down 100 points but I should have waited for the close when NASDAQ was about 500 points down. That is investing and trading! Cannot wait to maximize profits! My TLT (bonds) puts with a strike price of 110 and expiring January 2023 (bought 2/14/22) was up by 151.91% on 4/29/22, in 74 days! -too early to sell. Bought some TLT puts expiring January 2024. This is a no brainer as interest rates go up, TLT (bonds) will go down and my put options will go up. Most people in the market do not expect interest rates to rise that much but I do not agree as the Feds will keep raising rates to ‘drain the swamp” and cure the inflation problem. Just because there is supply side constraints, it does not mean that we should neglect the demand side which is fully under the control of the Federal Reserve. As I have been saying for a long time, a Fed Reserve President said that if markets do not fall significantly, they will keep increasing rates. This is just the beginning but the markets do not go up in a straight line and markets do not go down that way either.

On 4/29/22, we added Netflix to our portfolio. It will show up on the scorecard from June 2022.

Our purchase price was $190.36. I expect the price to drop over the next 12 months giving us an opportunity to purchase more and reduce our average cost. Let us assume that we bring down the average cost to $100. On 10/25/21, Netflix hit an all-time high of $690. If you look at the chart, it is clear that Netflix made a clear double top on 10/25/21 and on 11/8/21. As I started today, "the time to buy is when there's blood in the streets." . Just imagine Netflix going to $700 in 3 to 5 years- that is a 7 fold increase!

I decided to sell our RIOT holdings with a 49% loss during April 2022. RIOT used to reflect the price of bitcoin but no more. If that did not happen, puts on RIOT ciuld have been very lucrative. As I have been saying for years, now that the Federal Reserve is increasing interest rates, BITCOIN will not be attractive to fools who thought that it is a hedge against central banks increasing the money supply and contributing to inflation. Statistics show that young people have 75% of their assets in Bitcoins or Cryptos. What does it say about diversification? I am confident that one day we will see a 66% to 90% drop in the price of BITCOINS. Now companies are opening IRA and 401K accounts to BITCOINS and Cryptos. People who lost money in the 1929 crash, never forgot that lesson!

Have a great month!

Fernando

March 1 Post

Hi Again,

Raymond Merriman is a contemporary astrologer best known for his work in the astrology of the stock market. His formal education and training includes a bachelor’s degree in psychology (Michigan State University, 1969); postgraduate studies in clinical psycholog y, a life member of the American Federation of Astrologers (PLMAFA since 1972); commodities trading advisor (CTA, 1982); and series 3 and 7exams for commodities, financial futures, securities and investments (1986, 1989).

Currently, Merriman is president of the Merriman Market Analyst, Inc., an investment advisory firm specializing in market timing products and services. He is the editor of the MMA Cycles Report, an advisory newsletter issued 17 times a year, and used by banks, financial institutions, investors, and traders throughout the world since 1982.

Merriman has been quite good at predicting geopolitical events and market behavior. Now with all these global events, it is interesting to consider what he has to say at this point. Per Merriman Weekly Report dated 2/28/22:

·       The movement of all these planets from Capricorn (authoritarianism) to Aquarius implied the beginning stages of a more enlightened world population that will place more value on human rights, equality, and more freedom.

·       It is the end of an old cycle , which can be very difficult and resistant to change, and the beginning of a new cycle, which is readying to give birth.

·       I would think that within one year of the Saturn/Neptune cycle in February 2026, the current model of Russian governance will implode, as it has done consistently throughout history whenever Saturn and Neptune conjoin (every 36 years)

·       Mars moves towards Pluto on March 3, drums of war beat loudly.

·       Venus and Mars leave Capricorn for Aquarius in March 6, signs of peace and a reduction in violence emerge

·       Mars move towards Saturn on April 8, agreements may get violated and reinterpreted and twisted to imply something different than most everyone understood, and war drums beat again.

·       Jupiter applies to Neptune on April 12, another step towards peace can take hold. It could end there and things could start to stabilize. However it may not stabilize for long again as Jupiter moves in to Aries for the greater part of next year, with a greater demand for war machinery and weapons.

·       On top of all that, The US continues undergoing its Pluto return, which present an even more enormous challenge to the role and leadership of the US, both militarily and economically.

·       At this time as Jupiter applies to Neptune, we have a case for a speculative frenzy. It can either be irrational exuberance and hysteria, possibly leading to panic (or both), if not careful.

·       2/16/22 to 3/21/22 is one of the most important geocosmic time bands of the year.

·       Per Merriman again, “As VP Kamala Harris said recently in her meetings with European leaders, this is a defining moment for the future of the world”. She could be right

Apart from Geopolitics, Macroeconomic conditions rule all financial markets. In other words, it is all about the Federal Reserve and its intention to raise interest rates. As Martin Zweig warned us decades ago, “No one wins by fighting the Federal Reserve”. However according to one school of thought, this Russian invasion will make the Federal Reserve go slow on monetary tightening. That could happen but the main responsibility of the Fed Reserve is to tame inflation which is running at a 40 year high; and they are totally responsible for it. I agree with analysts who say that they should have started tightening one year ago. Even now they are buying mortgage securities which is inflating housing prices and rents to an unbearable level. Even though Presidents have taken credit or got blamed, most prosperity and hardships have come from the actions of the Federal Reserve. They are trying to have a soft landing but they always miss and overshoot and create recessions. That is not good for the Biden administration so even worse for the 85% of the population that earn less than $50K per year and got the last set of stimulation checks. In a time like this it is important to look at technical analysis or chart analysis.

Larry Williams has been trading futures, commodities, and stocks for over 53 years. Through good years and bad, he has worked tirelessly to bring his market wisdom to the rest of us, recording, writing, sharing and teaching fellow traders. Larry Williams has taught thousands to trade the markets, and has been the only futures trader in the world to repeatedly trade $1 million of his own money live at seminars around the globe. Larry's long list of best-selling books includes 1982's "How to Prosper in the Coming Good Years" which accurately forecasted the largest bull market and surge in economic growth in American history. He is a past board member of the National Futures Association and the recipient of numerous awards, including Futures Magazine's first Doctor of Futures Award, the Omega Research Lifetime Achievement Award, Significant Sig (a Sigma Chi acknowledgement), Traders International 2005 Trader of the Year, on October 6, 2002 the mayor of San Diego declared that day as Larry Williams' Day, and 2014 MTA (Market Technicians Association) Man of the Year Award.

Even before the market found a temporary bottom on 2/23/22, on 2/22/22, Larry Williams stated on CNBC:

·       Buying opportunity will emerge within the next 5 days

·       Compared to bonds, stocks are still undervalued.

Carter Braxton Worth, a 32-year Wall Street veteran, is the CEO/Founder of Carter Braxton Worth Charting LLC. He was Head of Technical Analysis at Cornerstone Macro Research beginning in 2016.  Prior to his role at Cornerstone, he was Chief Market Technician at Sterne Agee (acquired by Stifel Nicholas) and at Oppenheimer Holdings Inc.

This is what Carter had to say on 2/25/22:

·       Apple- For the week ending 2/25/22, Apple was still down 1.46% while all other mega teach were up. Compared to S&P 500, Apple is doing badly and the near term future for Apple is not good.

·       Commodity markets are close to a short term top, according to the Bloomberg Commodity Index. Carter recommends, “sell short and take profits”.

·       Where will the S&P 500 (SPY) be in 10 weeks? 15% probability that it will be higher and a 85% probability that it will be lower.

With volatility rising, there will be many opportunities for short term trading in all markets. Each time, the market goes up, it is a selling opportunity. Peter and Jon Najarian brothers who monitor option activity on a daily basis confirm that day trading volumes have been increasing exponentially over the past few days.

Have a great month!

Fernando

February 6 Post

Hi Again,

 We have not had a period of interest rate growth for a long time as there was no need for it as the rate of inflation has been low for about 35 years but now inflation is running at 5% or 7%. Now if the Feds do not increase rates, inflation can easily turn in to hyperinflation as we saw from late 1960s to the mid-1980s. Most market analysts have not being exposed to such changes or else they have forgotten what happened in the past. When Bernanke raised rates, all countries had problems as money flowed in to the US; even the Governor of the Central Bank of India lectured Bernanke in public. Europe and Japan have negative interest rates so when US rates go up, people all over the world flock to the US. We never learn from history.

Chinese President Xi Jinping took to the virtual stage at Davos to address Fed Chair Jerome Powell — please don’t lift interest rates. “If major economies slam on the brakes or take a U-turn in their monetary policies, there would be serious negative spillovers. They would present challenges to global economic and financial stability, and developing countries would bear the brunt of it,” said Xi, according to a transcript of his remarks on Monday. Of the major central banks, the Fed is expected to be the most aggressive, with financial markets now pricing in four rate hikes, and also expecting the central bank to start reducing the size of its nearly $9 trillion balance sheet. Yields on the benchmark 10-year Treasury TMUBMUSD10Y, 1.862% on Tuesday reached the highest level since Jan. 2020. Traditionally, Fed officials brush off concerns about how their policies impact other economies, saying they can only set policy for the U.S. economy. Xi has reason to be nervous about Fed tightening. China’s economy continues to slow, falling to 4% year-on-year in the fourth quarter from 4.9%. On Monday, the People’s Bank of China cut two policy rates by 10 basis points.(Steve Goldstein, Market Watch, 1/18/22)

Did you hear about Peloton (PTON)? Over the past 2 years during the covid crisis, many analysts would come on TV and say that people will never go back to the gym and all people will rely on PTON. That did not make sense to me. Investing in home gym equipment has never been a good thing and we know that pandemics do not last forever. I wanted to short sell PTON but I did not do it. On 12/21/20, PTON hit an all-time high of $162; and ever since then, it has been on the decline. Even a few days ago, around 1/15/22, some analysts were buying PTON stating that it has bottomed out. On 1/20/22, trading was halted twice as PTON announced that they are going to stop production as there is no demand for their products. The price of PTON was at $24. That is a 85% decline from the top! Now analysts are stating that if PTON gets delisted, it will be difficult to sell the stock. Net Income has been negative from day one! Remember dot-com stocks and 1999? These things happen in a bubble. When Feds increase interest rates, all companies with terrible financials will find it difficult to survive.  The latest news coming out of Wall Street shows that Amazon is interested in buying PTON. Lately Amazon has been buying companies that are not too good for their bottom line so they can add PTON as well.

What are the technical analysts say about the market?

Carolyn Boroden aka Fibonacci Queen is a technical analyst specializing in Fibonacci analysis. Her unique form of price and time analysis is quickly proving to be one of the most promising trading techniques using Fibonacci available today. Ms. Boroden's first book, Fibonacci Trading: How to Master the Time and Price Advantage, was published by McGraw-Hill in early 2008. Her services can be found on carolynboroden.academy and elliottwavetrader.net.  m 1/11/22, Carolyn stated the following:

·       The market will go down further

·       A major decline is in store

·       She correctly predicted the Nov./Dec. 2021 performance

·       New floor for Nasdaq around 15,000 (went down to 13,986 and now it is at 14,647)

·       If tech stocks go up, it is an opportunity to sell

·       Keep tech company stocks with solid profits and growth

·       The future looks ugly for Nasdaq.

Mark Sebastian is the founder of OptionPit.com and the CIO of Karman Line Capital.  Mark is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. The Author of the  popular trading manual "The Option Traders Hedge fund."  Sebastian hosts his own CBOETV show 'Track The Trade and is a  frequent guest on CNBC, Fox Business News, Bloomberg, First Business News.  He has been published nationally on Yahoo Finance and Barron's, quoted in the The Economist, The Wall Street Journal, Reuters, CNBC, & Bloomberg.  Mark has spoken for The Options Industry Council, the CBOE, the ISE, The CME,  and is a co-host on the Option Block and Volatility Views podcasts. This is what Mark stated on 1/21/22:

·       What happened on 1/21, was a “VIX swelling” (long term impact) and not a “VIX spike”. VIX is the “fear gauge’ or the volatility index.

·       Even when S&P went up, VIX did the same. This is a bad omen

·       The market is becoming irrational

After FB (former Facebook) went down by 25%, I bought a little bit, hoping to buy if it goes even lower. Then the price more or less stabilized. Soon after that when SNAP dropped in the same manner I was thinking of doing the same but I did not do it. Big mistake! Next day it was up by more than 50%!

Have a great month! 

Fernando         

January 10 Post

Happy New Year, Everybody !!

From 1/1/21 to 12/31/21, S&P500 rose by 31% and during the same time period, our portfolio rose by 47.18%!

 The Federal Reserve keeps announcing that interest rates would go up 3 or 4 times but the market has been ignoring those warnings. Sooner or later, the market will decline 30% to 60%. We too will get affected. If you want on the railway track towards an oncoming train thinking you have more time to get out of the way, you are a fool. Except for the mini crash that we saw in 2020 for a brief period, we have not seen a real bear market in a long time so it is understandable that people have a difficult time in believing that we would have a meaningful correction in 2021. I keep buying some put options on the S&P 500 (SPY) as a hedge. Also as interest rates increase, the bond market will fall. To take advantage of this situation, we can short sell the bond ETF called TLT. On 12/20/21, I bought some put options on TLT and on 1/5/22, in 16 days, my put options were up by 95% !!. The part of the market that would be most affected would be technology stocks with no earnings. Cash would be the safest place to hide. We can have a wish list of stocks ready so when the bear market begins, we can start nibbling at stocks that are expected to do well within the next 5 years.

This is what market analyst and astrologer just said about the market, “In the past, it hasn’t paid to fight the Fed when it was in a generous and accommodative mood. I suspect it won’t pay to fight the Fed when it says it is time to get off our addiction to the sugar highs of fiscal and monetary accommodation we have gotten used to over the past decade. It’s not a bad idea to get off sugar. Yet, as Jupiter continues to approach Neptune in Pisces in April, those with the sugar blues aren’t going to go down meekly. Inflation will likely be here a little longer, even after the Fed administers a heavy dose of distasteful medicine. But not to worry. I don’t think the Fed will last long either on this diet. Once Jupiter enters Aries, another fire sign, after May 10, I expect they will go for the sugar again, thinking they proved a point or feeling the heat of Aries now being administered by a government that never wanted to go cold turkey in the first place, especially heading into a mid-term election.” (Merriman weekly report, 1/10/22).

With Fed action, Mid-term elections and covid, get ready for a very interesting 2022!

Have a great month!

Fernando

 

December 12 Post

Hi Again,

 Patience! Patience! That matters a lot in investing. Years ago, when Twitter was going down for many months or years we kept Twitter on our portfolio and it paid off handsomely. For the past year or so, Apple was dead in the water. On 10/4/21, Apple was at $139 but it ended at $175 on 12/8/21. 21% gain in 55 days! Once again Apple stated that in a couple of years they will produce an electric car. Years ago Elan Musk stated that Tesla engineers go to Apple to retire. When Musk was having financial problems, Musk made a call to Tim Cooks (CEO, Apple) to see if they could do a joint venture but Apple did not respond. My Apple call option (strike price $200, expiry date January 2023) has a 150% gain already. Apple in our portfolio has a gain of 613% (up to 11/30/21).

Over the past year or so I have been noticing that when Boeing goes down to about $200, it bounces right back. On 1/25/21, Boeing was at $194 and intuitively I felt that in a few months the stock could easily go up to $250, giving it a 25% gain. I got greedy and instead of buying the stock, I bought out of the money call options. On 3/8/21, Boeing went up to $269!  A 28% gain in just 42 days! Unfortunately my options were so out of the money, I did not gain anything. Boeing options are so expensive that I did not have a choice but buy way out of the money calls. I should have got in to the stocks and not in to options. 2020 was a very good year for options while 2021 was a terrible year for option trading. However those who want to create a small gain or “create your own dividends”, writing covered call options (with the stocks you own) is a good strategy in this market. On 12/8/21, Boeing is at $211. If you write a covered call options with a strike price of $215 with an expiry date of 2/18/22, the premium you will collect is $13. By 2/18/21, if Boeing does not go over $215, you will keep all your Boeing stocks and pocket the $13 per share you collected on premiums- That is a cool 6% in about 2 months. On the other hand, let us assume Boeing goes way over $215 prior to 2/18/22 and the person who bought your options end exercising the options. Then you still keep the initial premiums as well as sell Boeing for $215 on 2/18/22(which you bought for $211 on 12/8/21). In total, a 8% gain in about 2 months. With Boeing this is not much of a risky thing to do as it is expected to reach its old time high of $400 or so ($440 in March 2019) in a couple of years.  

The Federal Reserve Bank has been sending warnings shots that they intend to increase interest rates which will be bad for all markets but all markets keep ignoring the Feds. Rick Santoli the CNBC bond expert who report from the Chicago Mercantile Exchange recently joked that the relationship between the Federal Reserve and the Market is like a relationship between a parent (the Feds) and a child (markets) and Rick stated, “When the child does not get anything, the child puts up a temper tantrum and when you tell the child something, the child remember as if you promised that to the child”. This time around the Feds stated that inflation is here to stay and that means we could have high interest rates in the future. Inflation can easily lead to hyperinflation. It is difficult to keep inflation under control. Remember the Nixon era to the Reagan era? Nixon, Ford, Carter, Reagan all tried on the fiscal side but nothing worked. It was Fed Chair Volker in the 1980s got inflation under control by raising interest rates. In 1981, the average interest rate was over 16%. Nixon issued Executive Order 11615 (pursuant to the Economic Stabilization Act of 1970), imposing a 90-day freeze on wages and prices in order to counter inflation. This was the first time the U.S. government had enacted wage and price controls since World War II. When the Federal Reserve wants to expand economic activity, they lower interest rates and the sole reason why they increase interest rates is to “drain the swamp” and take away the “punch bowl” and prevent overheating in the economy. The problems we experience exist in every single country in the world.  Supply chains issues stemmed from the covid crisis. Due to covid, all central banks printed money to stop a depression. Assisting the middle class and the poor who are close to being destitute is not causing inflation. Even Trump finally agreed that 99% of his excessive tax cuts went to corporate buyback of stocks. According to Barron’s 65% of investors and traders are currently buying everything on margin. If we have a 30% to 60% decline in the market, these people who bought on margin will get destroyed. Rising rates will boost the US dollar and create a huge cash inflow from other countries as Europe and Japan have negative rates. Some are short selling bond funds; that is a very smart thing to do. When Bernanke raised sates, all Central Bank Governors were very upset as they could not control fund outflows. For the past few years we have been seeing gold and bitcoins rising sharply as most people lost confidence in the Feds. If rates get normalized, most people who made money in bitcoins and gold, could trade those profits for 100% safe treasuries. A few weeks ago Ted Cruz and other Republicans wanted to force the government to default on debt payments. I was hoping that they would succeed. Then the Republican donors asked them to stop that nonsense. Most of them are the biggest bond holders and after a default the government has no choice but take care of the poor and not give more excessive tax cuts to the 65 US billionaires (who made over a trillion in 2020 and paid next to nothing in taxes)  and multi trillion dollar companies so they can use tax cuts to buy back stocks like Apple that spends over $100 billion per year of tax cuts to buy back stocks each year.  I do not know when but over the next couple of years we will see fireworks in the market as Feds start raising interest rates. In the 1980s Martin Zweig coined the term “Don’t fight the Feds”. Most investors and traders are “fighting the Feds” with their wishful thinking. That means we will have many opportunities to make money in the market by short selling or buying puts on index options.

Happy Holidays!

Fernando

Nov 7 Post

Hi Again,

Did you notice our performance on Tesla? It was down for a long time and even went down to $600 but patience gets rewarded. From 9/30/21 to 10/31/21, it went from $775 to $1128-total gain for Tesla in 8 months- 93%!

 Everything is in a bubble! Have you seen the TV show, “pawn stars”? They were saying that they do not want to buy old video games as they are in a bubble. A pair of shoes manufactured in the 1980s was sold for 1 million. Prior to 2017, most people stated that real estate will never go down and that led to the mortgage crisis. I have been saying that we are heading for a worse situation. Over the past few years, big companies with “printed” money buying houses that they can find assuming that it will be all profitable in the future. I knew it was a bad idea. Greedy landlords were increasing rents and doubling the homeless population. As I have been predicting, we can now see the “cracks on the dam” but we are not even close to the “dam blow up”. Zillow started as a website bringing buyers and sellers, renters and landlords and then they started buying houses and building up big inventories. On 11/2/21, they announced that they no longer will buy houses and add to their inventory as the market prices of their houses are below the purchased prices! This is just the beginning! Market analysts who were praising Zillow for years are now saying that it is a terrible business! I am sorry I did not buy some puts to short the stock. On 11/2/21 alone Zillow dropped by 20%. The worst is yet to come! 2007/2008 will seem like a picnic! It was only last month that I said that in the future, most people will be upside down on their mortgages as it was after 2007/2008. This time around, it is different- Prior to 2007, people with no assets or income were allowed to buy but this time it is hedge funds and private equity (in the US and overseas) have been buying most of the houses expecting to make money by assuming housing prices will rise to the sky. This time around the Federal Reserve and the government should allow these big funds to fail and make housing affordable to most people.

 Bubbles! Bubbles! Investors become myopic during bubbles. They believe the universe of attractive investment opportunities is small and growth can only be found in a few selected sectors. They seem enamored with vacations in outer space and electric vehicles, yet ignore the dire need for improving US logistical and electrical infrastructure.(Barron’s/Market View,   10/29/21)

 History keeps repeating itself as people do not learn from history. We have so much in common with the 1920. Barron’s had a nice article on the 1920s. There was no compassion for the poor and the struggling middle class. During the Great Depression, when a child stole a loaf of bread, that child was sent to a dangerous adult prison. One of my former older friends who grew up in Nazi occupied Holland used to steal food from the Nazis to stay alive.

 Per Barron’s (10/18/21), Annualized growth in China (PRC) GDP for 3rd Qtr, 2021: 4.9%. For decades if the PRC had a growth rate below 8%, it was considered alarming!

 Per Barron’s (10/8/21). The total amount of debt tied to China’s (PRC’s) property market: $5 Trillion !! China (PRC) used that money to create homelessness around the world and now the Communist Party is concerned about what that is doing in China.

Now for Bitcoins! China had become a key player in this new financial ecosystem, and Beijing’s actions could be the leading edge of a broader regulatory crackdown on cryptocurrencies and crypto assets by regulators around the world. China had earlier banned initial coin offerings, the cryptocurrency equivalent of initial public offerings of stock by companies. It then took steps to limit Chinese financial institutions’ dealings with cryptocurrencies and crypto assets. The latest move is much broader. All domestic cryptocurrency transactions are now prohibited. In principle, such transactions can be conducted without the government’s direct knowledge. But few Chinese citizens or financial institutions are likely to risk the government’s wrath. Beijing’s actions illustrate how national governments and central banks are becoming increasingly fearful of cryptocurrencies destabilizing their financial systems and other negative consequences. They have good reason to be worried. Bitcoin, the original cryptocurrency, once fueled illicit transactions on the dark web and now facilitates payoffs for ransomware attacks. It has become apparent, meanwhile, that Bitcoin doesn’t work well as a medium of exchange for everyday transactions. Its value is unstable, and the Bitcoin network cannot process a large volume of transactions quickly and cheaply. The prospect of households channeling their savings into crypto assets, leaving them vulnerable to a bursting of the speculative bubble, is worrying to governments. China’s government clearly didn’t want any part of this, especially since it is already facing pushback for trying to cool off the speculative bubble in housing markets, which it once encouraged. Yet another concern was that cryptocurrencies and stablecoins could be used to evade restrictions on cross-border financial flows. Such controls have been eased in recent years. but the government worries that unfettered flows would make it harder to manage the renminbi’s exchange rate. In 2015-16, when China was trying to rein in massive capital outflows and stanch a steep depreciation of the currency, demand for Bitcoin from within China spiked as people used it to take money out of the country and evade the government’s controls. Beijing now sees cryptocurrencies as conduits for evasion of capital controls. The environmental impacts, in terms of energy consumption and computer detritus, have been enormous. With the country in the midst of a power crunch as it tries to wean itself off dependence on nonrenewable energy, Bitcoin mining clearly wasn’t going to be tolerated (Eswar Prasad, Barrons/China Fears, 10/15/21)

 Is our debt level too high? During Trump years we were told that deficits do not matter and burdening future generations to give tax cuts to the wealthy and immensely big companies was not a problem. Last stimulus check went to “low income” families earning less than $50,000 but 85% of the population received it. When Trump gave a huge tax cut for companies, he stated that it will help them hire more employees and make it better for employees. Later Trump agreed that 99% of the corporate tax cut went to buy back stocks. Why? Company CEO pay packages are tied to stock performance so some CEOs earn more than $100 million per year. Disney family was disgusted at the difference between the CEO pay and the pay package of an average employee.  Now we can see more and more strikes as wage earners are refusing to tolerate these conditions that have been getting worse since Reagan took over in the 1980s. When Trump was threatening to raise tariffs on imported items, he said that if companies move out of the US, the goods they sell in the US will be ‘taxed’ at a high rate as an incentive to produce most goods in the US. Trump is correct. Now 2 Democratic US Senators acting like Republicans say that they do not want the Middle Class or the poor to have a “sense of entitlement”; however it is okay for multi-Billion dollar companies that pay next to nothing in taxes and the 65 US billionaires and the very rich to have a “sense of entitlement” and pay next to nothing in taxes. As in the 1920s, the party will end one day. 65 Billionaires in the US earned more than a trillion dollars in 2020. People say that our debt level is too high and that there is no solution in sight. Is it? Even though this is oversimplified, consider this, assume the 65 US billionaires will earn a trillion per year for the next 25 years. If those 65 billionaires pay a  95% tax rate, the total US debt will be gone in 25 years! Just imagine 65 citizens paying off this “huge” debt of the US within 25 years! Instead of doing that if we honor the great Republican President Eisenhower and bring back those tax codes for individuals and corporations, the total US debt will be eliminated pretty soon. Economists have stated over and over again shown that cutting taxes do not decrease deficits as some would like us to believe. That is like me saying that if all you give me 50% of your assets, your assets will not go down.  Even “read my lips” Herbert Walker Bush increased taxes which led to the first budget surplus since WW2 during the Clinton years. Clinton did not have anything to do with it. For HW Bush, country first but George W, it was all about getting a 2nd term as analysts say, ”George W did not see tax cut he did not like”. Compassion is a dirty word for some politicians. Some political party people believe that compassion is for socialists and we have to listen to Reagan who said that “Greed is good”. Just like the 1920s!  Read the article, “How the roaring ‘20s crashed and burned” in Barron’s (10/25/21). When everything crashes, make money by short selling the market!

Have a great month and a Happy Thanksgiving!

Fernando

October 11 Post

Hi again all,

Historically September is the worst month for stocks and we have had some bad crashes in October (1929 and 1987 for example). From 9/1/21 open to 9/30/21 close, S&P500 lost 4.88% but during the same time our portfolio gained 13.45%. On 9/20/21, the Dow fell 800 points; and at that time I sold my S&P500 (SPY) puts with a December 2021 expiry date and bought some that expire in February 2022. It is always good to have some puts as a hedge.

In the past I discussed how the corrupt government of El Salvador, going against the advice (warnings) of the World Bank and the IMF and was the first country to make Bitcoin legal tender. “May ring their bells now, before long they will be wringing their hands” (Sir Robert Walpole,1887). In El Salvador, 75% of the people do not even have credit cards. There were massive rallies in the country where people set fire to Bitcoin ATM’s. China continued their crackdown on bitcoins and crypto currencies and threatened legal action against those who against their policies. We should do the same!

Current real estate situation and markets remind me of 2006/2007. Market is at an all-time high but everyone is getting in to more and more debt for that privilege. As it has happened many times in the past, this will not end well and for decades millions will be end upside down on their mortgages.

Chinese property giant Evergrande is on the brink of collapse, and analysts warn the potential fallout could have far-reaching implications that spill outside China’s borders.On the heels of Evergrande’s debt crisis, there are increasing signs of stress in China’s property market after one developer failed to make a bond payment on Tuesday. “Evergrande’s collapse would be the biggest test that China’s financial system has faced in years,” says Mark Williams, chief Asia economist at Capital Economics. After expanding rapidly for years and snapping up assets as China’s economy boomed, Evergrande is now snowed under a crushing debt of $300 billion. (CNBC, 10/5/21). Chinese luxury real estate developer Fantasia Holdings said it failed to make a $206 million U.S. dollar bond payment due Monday, sparking fears that debt problems among China’s property development companies spans far beyond China Evergrande. Shenzhen-based Fantasia issued a $500 million senior bond at 7.375% in 2016, but did not repay the outstanding principle when it matured, it said in a Monday exchange filing. Fantasia (ticker: 1777.Hong Kong) invests chiefly in luxury real estate developments in metropolitan areas. Just two weeks earlier, Chairman Pan Jun said in a statement there was no delay in repaying offshore security notes, and that the company’s operating performance was “good with sufficient working capital and no liquidity issue.” (Barron’s, 10/8/21) This column argues that the footprint of China's real estate sector has become so large – with an impact of real estate production and property services on GDP of 29% a few years ago it was around 10%)  – that absorbing a significant housing slowdown would significantly impact overall growth, even absent a financial crisis (Voxeu, 9/21/21)

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning” (Winston Churchill). The whole globe will be impacted but it will take time.

When the Chinese government announced that they will not bail out these real estate firms, many on Wall Street stated that this is real capitalism as they believe that there is nothing as “too big to fail”. China is very good at controlling so it might not work for us. Instead of saving these super rich who were exploiting wage earners, the Chinese government promised to help wage earners. As they stated, they do not want home ownership, education only limited to the super rich as it is done in the West. The Chinese government is trying to boost the middle class. The economic growth was the greatest when our middle class did very well- soon after World War 2 with the GI Bill and other veteran benefits.

Most people think free enterprise or capitalism is a “free for all” for the rich and the powerful.  That is not true. Adam Smith was an 18th-century Scottish economist, philosopher, and author who is considered the father of modern economics. Smith argued against mercantilism and was a major proponent of laissez-faire economic policies. In his first book, "The Theory of Moral Sentiments," Smith proposed the idea of an invisible hand—the tendency of free markets to regulate themselves by means of competition, supply and demand, and self-interest. (Investopedia).

When I was in grad school, the Chairman on the Economics Department stated that in Adam Smith’s last book was on the importance of government intervention in the economy or else the richest few would destroy most middle income and lower income people. He came to that conclusion after studying the public transportation system in UK at that time.

History repeats itself when we do not learn from history. We have so much in common with the 1920s. We know how it all ended. After the 1929 The Emergency Banking Act of 1933 was a bill passed in the midst of the Great Depression that took steps to stabilize and restore confidence in the U.S. banking system. It came in the wake of a series of bank runs following the stock market crash of 1929.Over the past 30 years we have been dismantling most of those safeguards in the name of deregulation. This is very dangerous. There are laws against conflict of interest governing people in Congress or in the administration so almost expected the same from people working for the Federal Reserve Bank. It should apply more to them than to those in Congress or Administration. Let us assume a few people who sit on the Federal Reserve Board decided to short sell the stock market and bond market buying puts on the indices (SPY, DIA, QQQ etc.); and then they make a surprise announcement that with immediate effect they are going to increase the interest rate by 5% which would result in a 90% decline in the bond market and in the stock market. All those Federal Reserve officials would become billionaires overnight! What came to light last month was shocking to most people. They did not do anything illegal but that makes it worse. Not only they held stocks/bonds but they were  also were trading!

Two Federal Reserve officials said on Thursday they would sell their individual stock holdings by the end of the month to address the appearance of conflicts of interest. Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren issued statements saying they would invest the proceeds of those sales in diversified index funds and cash savings and would not trade in those accounts as long as they are serving in their roles. The announcements come after the officials faced scrutiny over trades they made last year, according to their financial disclosure forms. In the forms, first reported by the Wall Street Journal, Kaplan disclosed he held a total of 27 investments in individual stock, fund or alternative assets that were valued at over $1 million each. He also made sales or purchases of at least $1 million in 22 individual company shares or investment funds, the report noted. The transactions included Apple, Amazon and General Electric.(Reuters, 9/9/21). Eric Rosengren, the president of the Federal Reserve Bank of Boston, said he would step down this week for health reasons. Meanwhile, Robert Kaplan, the president of the Dallas Fed, said he would resign Oct. 8 to avoid becoming a "distraction" from the Fed's broader mission.(NPR, 9/27/21).

 No one knows when but one day we will have an immense crash so it is better to keep 25% to 50% of one’s portfolio in cash so we can benefit from such a crash. However good technicians expect the market will be bullish from the end of October to January.

Have a great October!

Fernando

September 6 Post

Hi Again,

We managed to gain 3.79% in August. Now we are in September which is the worst month (historically) for the market. For the longest time, all experts have been expecting at least a 10% correction but the market does not like to go down. The theory is that all the liquidity created by the central banks of the world is driving asset prices. We have so much in common with the 1920s and we know how that story ended. History tends to repeat itself. The US Federal Reserve went from “not thinking of interest rate hikes’ to “thinking about hikes” and even that did not scare the market. Per CNBC on 8/30/21, 65% of retail stock investors are buying on margin debt! When market start to go down in a big way, these people are going to be in big trouble and create an avalanche to the downside but no one has a timeline on that. Consider it a buying opportunity!!

Usually volatility in the bond market leads to volatility in the stock market but these is a time lag between the two. We already saw volatility in the bond market so we could see volatility in stocks over the next 6 months. Bond investors try to be ahead of the Feds so even if the Feds tighten a little, bond investors could run for the exit. Carter Braxton Worth, Market Technician believes that the market will be down by 12/31/21.

GE effected a 1-for-8 reverse stock split on July 30, 2021. The split adjusted shares began trading on August 2 above $100, the company announced. The reverse split multiplied the price of the stock investors own by 8, but also reduced the number of shares they owned, by dividing the number by 8. Our “scorecard” was adjusted accordingly.

What happened to GE? For decades, GE used to be the company most respected and admired by all other companies in the world. Former CEO of GE, Jack Welch was known as the pope of CEOs. After his departure, everything came crumbling down. The current CEO is expected to build back GE but a reverse stock split? Only companies who are afraid of getting delisted from the NYSE etc. go through a reverse stock split. No one thinks that GE is in danger of getting delisted but they seem to think that they can get more respect with a reverse stock split. How sad!

Larry Williams, is the author of 11 books, most on stocks and commodity trading. On 8/24/21, Larry stated the following:

·       Historically first week of September is bad for treasury bonds

·       At this time small speculators in the bond market are buying while the big commercial speculators are selling. Generally, small speculators are wrong. This is a bearish sign.

·       Over the next few months, bond prices will go down and the bond yield will go up and that is bad for the stock market. (Remember October 1987? A sharp movement in yields for 30-year U.S. Treasury bonds helped set the stage, with the yield jumping to 9.61% on Oct. 1, 1987, from 7.39% at the beginning of the year, according to the Federal Reserve)

Now for Bitcoins! What the Chinese government has been doing is not good for the Western World but it is good for China and most of its people. They have been tightening restrictions on bitcoins for a long time. Is there anyone who has not heard about “ransom ware” and the connection to Bitcoins? Now experts state that with all the bitcoins the criminals received from ransom ware , they have purchased sophisticated hacking equipment to do more damage in the future. Warren Buffet and Charles Munger spoke out publicly against Bitcoins and how it is helping criminals around the world. Wall Street money managers mocked Buffet and Munger as their combined age is close to 200, claiming that they have lost touch with the current world. Wisdom comes with age and Wall Street money managers are blinded by greed. On 4/12/21, Barron’s included a very good booklet on Bitcoins and Cryptos; and according to that report, 2.4% of the account holders own 95% of all Bitcoins! Millions of Americans (not to mention other nationals in other countries) have suffered due to Bitcoins enabling “ransom ware hacking”; and the worst is yet to come. In the future, directly or indirectly, almost all Americans will suffer due to Bitcoins. Setting pride a side, our authorities should take a lesson from China and tighten controls on Bitcoins. Many Bitcoin holders find that their accounts get completely “washed out” by hackers overnight! Anything not “hackable” today could be “hackable” tomorrow.  Let me repeat, per Barron’s (4/12/21), 2.4% of the account holders own 95% of all Bitcoins!

Have a great September! Historically the worst month for the market!!

Fernando

 

 

August 7 Post

Hi Again,

 We had a very small correction that lasted a couple of hours. The market is dead in the water. Hopefully we will have a big correction before December. Nothing much is happening now; it is the same old story. Historically, summer is a dull time for the market.

Over the past 9 months, crude prices have been rising and I have been warning that this is not sustainable. In October 2020, crude was at about $40 and recently, it rose to $75. Then many investors started buying the commodity and oil companies. I always felt that it was a mistake. Buy at $75 and sell at $100? Oil companies are not making long investments as more and more countries are moving away from fossil fuels. Also it was due to domestic production that prices crashed in the first place; which implies that when oil prices rise, domestic production will rise and keep a cap on prices. Value of deals in the US shale industry in 2021 Q2; $33 Billion- second highest ever! Imagine crude going up to $100; what will happen to domestic production? We have seen that movie before.

Carolyn Boroden is a top-notch technical analyst, who specializes in advanced Fibonacci strategy, in addition to a published author. As she’s been in this industry for over several decades now, she first became interested in Fibonacci in Chicago in 1986. After learning Fibonacci from Robert Miner, she ventured to open her own website. Carolyn is also known by her nickname, “Fibonacci Queen”. Carolyn has been accurate about past corrections on the S&P 500. This is what Carolyn stated on 7/21/21:

·       Since 1/1/21, average correction did not last for more than 3 days so we can expect the same for the next few months

·       On the S&P 500, if we can manage to stay above the 7/19/21 low (4233), then the market will maintain its bullish trend. Next goal: 4492

·       If the S&P 500 falls below 4023, then we could have a big correction.

·       If the market is bullish, it is also bullish for the big stocks such as Apple, Google/Alphabet, Facebook, Microsoft, Amazon etc. Apple alone is 6.1% of the S&P.

Carley Garner is an American commodity market strategist and futures and options broker and the author of "Higher Probability Commodity Trading" published by DT publishing an imprint of Wyatt-MacKenzie. She has also written four books published by FT Press, Currency Trading in the FOREX and Futures Markets, A Trader's First Book on Commodities (two editions), and Commodity Options. Commodity Options was named one of the "Top 10 Investing & Trading Books of 2009" by SFO Magazine. This is what Carly stated on 7/13/21:

·       December 2023 Oil Futures show that oil prices will go down in the future.

·       The stock market is close to a top.

·       Usually oil prices peak in July

·       With respect to oil, right now, big speculators are mostly bullish so that is bearish for the long term. Outcome should be like 2018.

·       If Crude falls below $80, it could go down to $60; and if it goes below $60, it could go down to $40.

As I have been expecting, Apple has been doing well lately.  It is better to bet on a solid company with solid balance sheets and growth than invest in companies with no earnings. Apple is the best with $190billion in cash and that has been the case for a very long time. On 10/31/20, Apple on our portfolio had a gain of 370% and as of 7/31/21, it has risen to 529.93%! On 7/14/21, Apple asked suppliers to increase production by 20% as they are expecting a boost in IPhone sales.

Gene Munster is Managing Partner & Co-Founder of Loup Ventures, a research-driven venture capital firm based in Minneapolis and New York investing in frontier tech companies. This is what Gene stated on 7/27/21 on the recent Apple earnings call:

·       Apple exceeded analyst expectations.

·       Expect Apple price to go over $200 in 2021/2022

·       Investors should be patient with Apple

·       Service industry (i.e. Healthcare) to generate $300B+ in revenue

·       Technically, “past resistance” is a “future floor” so most probably at least in the near term, Apple will not fall below $139.07 (high of 1/18/21).

There are several ways to make money off Apple. On 8/5/21, Apple closed at $147. Let us consider options that expire on 9/10/21 (in 36 days). Strike price $139 had a price of $1.40 so if you write a naked put option with the strike price $140 that expire on 9/10/21, you can collect close to 1% (that is 1% per month). Per Gene Munster, most probably, Apple will not fall below $140 in the short term so your put option will expire worthless so you will end up with 1% per contract “written” in your pocket. If Apple falls below $140 before 9/11/21, you will be obligated to buy 100 shares of Apple at $140 for each contract you “wrote/sold”.

Historically September and October are the worst months for the market. Professionals are buying hedges to get ready!

Have a great month!

Fernando