Global Market Comments
January 19, 2016
Fiat Lux
Featured Trade:
(JANUARY 20 GLOBAL STRATEGY WEBINAR),
(THE GAME CHANGER FOR SOLAR),
(FSLR), (SPWR), (SCTY), (TAN),
(TESTIMONIAL),
(BREAKFAST WITH MOHAMED EL-ERIAN)
First Solar, Inc. (FSLR)
SunPower Corporation (SPWR)
SolarCity Corporation (SCTY)
Guggenheim Solar ETF (TAN)
With great fanfare, congress passed a blockbuster $1.8 trillion spending bill in December. President Obama hastily signed the bill into law the next day.
Barley noticed was a measure included in the bill, which extends the 30% investment tax credit for alternative energy investments by five more years, until the end of 2021.
Barely, that is, unless you owned solar stocks.
Since the intention to include this pet democratic program started leaking out in November, shares of the entire industry doubled in value.
Solar City (SCTY) rocketed by 136%. First Solar (FSLR) soared by 81%. Even the normally quiescent Guggenheim Solar ETF (TAN) gained an impressive 28%.
Since then, these shares have given up a big chunk of their gains, thanks to the ongoing stock market correction. Better look hard at this group. They could become one of the top performers this year.
In exchange for the solar extension, the president agreed to permit oil exports for the first time in 40 years. The fact that the country has run out of storage and already has 50 filled takers sitting offshore in the Gulf of Mexico makes this an easy move.
House Minority leader, Nancy Pelosi, my local congressperson, told me the republicans were willing to ?Give away the store? to get the export measure through.
It seems that the Koch Brothers, the republican party?s largest donors and funders of global warming deniers, wanted to use the oil export measure as the means to offshore the entire US petrochemical industry.
It is headed for emerging nations, where labor is cheaper, taxes are lower, and regulation nil. That means the loss of tens of thousands of US jobs, many in California, over which Pelosi complained.
Pelosi complaining about the loss of petrochemical jobs? It?s proof that if you live long enough, you see everything.
Whatever jobs the Golden State loses here, it will make back with solar, big time. Industry analysts estimate that the five-year extension is worth a STAGGERING $125 BILLION IN ADDITIONAL SALES!
That is a multiple of the entire solar industry?s current total annual sales.
What?s more, this is five years during which the solar industry can dramatically improve panel output efficiencies, inverters, designs, and cut costs (remember that the cost of labor and regulation, about half the cost of a solar installation, is still rising).
Solar is already close to grid parity on costs now. It is even competitive in Texas. It will be substantially cheaper in five years.
During the same time, the cost of grid power will keep rising continuously, thanks to rising capital cost of replacing aging infrastructure.
I?m not saying you should rush out and buy solar today. But when the bull market resumes later this year, this group should be at the top of your list.
As for me, I am already getting estimates for a doubling of my existing solar roof system to accommodate the charging of my second Tesla, the Model X.
To learn all the ins and outs of buying and installing a solar roof system for you self, please read ?How to Buy a Solar System? by clicking here.
Better Bring Some More Panels
Thank you for talking with me on the phone right before Christmas.? I enjoyed our conversation and look forward to meeting you at your Incline Village Global Strategy Luncheon in the spring.?
I will also look forward to the hike up to 12,000 ft. after our lunch, (are you sure you want to spot me by carrying a 60 lbs pack?). I usually stop running at 12,000 just saying. LOL.?
Hope you are having a great day! I renewed today!
Greg B.
Colorado Springs, Colorado
Winter Hiking at 12,000 Feet in the High Sierras
Passing through Los Angeles for a day, I thought I would take a walk down Nostalgia Lane and have breakfast at the historic Langham Huntington Hotel, the venue for my 1970 senior prom.
I was half way through my eggs Benedict in the Terrace Room when, who sits at the next table, but bond giant PIMCO?s brilliant former CEO and co-CIO, Mohamed El-Erian.
That?s the last time he makes that mistake. I proceeded to grill him on the long-term prospects for the global economy, in the politest way possible.
Mohamed anticipates ?a bumpy journey to a new normal.? Developed countries will see sluggish economic growth, high structural unemployment, increased regulation, and constant pressure for private sector deleveraging.
Emerging economies will maintain the breakout stage of their development phase. They will deliver high economic growth, strong currencies, and increasingly close the income gap with the developed world.
Policymakers have embraced initiatives designed to boost asset prices, divorcing them from economic fundamentals. The impact on Main Street has fallen well short of expectations. Interest rates have been repressed.
Mohamed thinks we will see an uneven and faltering economic recovery over the next five years. He is sticking with his long-term growth rate for the US of 2%. Investors face a particularly devilish challenge in that much of our past returns have already been borrowed from the future.
Inflation will return eventually. Commodity prices will rise. Yield curves will steepen. High dividend stocks will prosper. Many emerging market currencies will appreciate.
El-Erian has one of the best 90,000-foot views out there. A US citizen with an Egyptian father, he started out life at the old Salomon Smith Barney in London and went on to spend 15 years at the International Monetary Fund.
He joined PIMCO in 1999, and then moved on to manage the Harvard endowment fund. His last book, When Markets Collide, was voted by The Economist magazine as the best business book of 2008. He regularly makes the list of the world?s top thinkers. A lightweight Mohamed is not.
His final piece of advice? Engage in ?constructive paranoia? and structure your portfolio to take advantage of these changes, rather than fall victim to them.
Global Market Comments
January 15, 2016
Fiat Lux
Featured Trade:
(JANUARY 20 GLOBAL STRATEGY WEBINAR),
(THE MARKETS ARE NOT RIGGED)
(TESTIMONIAL)
Hi John,
I now have some great strategies, which are working well thanks to you. I just need to follow them, stop listening to others, and stick more to my own plan, and of course your research.
All the best for the festive season.
Dallas
Melbourne, Australia
Hatchet Throwing Contest at Fort Vancouver, WashingtonGlobal Market Comments
January 14, 2016
Fiat Lux
Featured Trade:
(WHY I DOUBLED MY SHORTS YESTERDAY),
(SPY), (XIV), (USO), (FXI),
(HOW TO TRADE THE FRIDAY OPTIONS EXPIRATION),
(SPY), (TLT)
SPDR S&P 500 ETF (SPY)
VelocityShares Daily Inverse VIX ST ETN (XIV)
United States Oil (USO)
iShares China Large-Cap (FXI)
iShares 20+ Year Treasury Bond (TLT)
I did not buy the rally in stocks this week for two seconds.
Once the S&P 500 (SPY) bounced off of the $190 level the first time, it was only a question of how soon to sell again. When I said ?Sell every rally in stocks this year,? I wasn?t kidding.
As it turns out, I caught the absolutely top tick in the (SPY) at $195.
That?s where I quickly bought the (SPY) February $202-$207 vertical bear put debit spread. Within hours, the index cratered an awesome $70 handles, and I was already looking at 70% of the maximum potential profit.
The great luxury of the S&P 500 SPDR?s (SPY) February, 2016 $202-$207 in-the-money vertical bear put spread is that it allows you to cash in on continued extremely elevated levels of the Volatility Index (VIX).
This is why the potential return is so high for a front month options spread already 7 handles, and now 12 handles in-the-money.
In the meantime, I continued to run big shorts in the (SPY) with my February 187 and $190 puts.
This was on the heels of cutting by half my (XIV) position at cost, and taking profits on my (SPY) January $182-$187 vertical bull call debit spread during the rally.
Since yesterday, I have cut the net exposure of my sizeable trading book from 40% to 0%. This is how you do it.
My lack of faith in this market can be measured by the bucket load.
I believe that oil (USO) hasn?t bottomed yet.
All we are seeing here is a round of natural short covering you would expect as the price bounces off the big round number of $30, something which computer driven algorithms love to do.
There are many more visits to the $20 handle for oil to come. Brent is already there.
If you have some magical insight into the price of oil, better than the entire industry combined, and are convinced that Texas tea bottomed yesterday, then you shouldn?t touch the S&P 500 SPDR?s (SPY) February, 2016 $202-$207 in-the-money vertical bear put spread. In that unlikely scenario, stocks rocket from here.
Then there?s China (FXI), whose continued turmoil will bring further US stock losses. I assure you, not even the Chinese know what?s going on in China. They are more like the unfortunate deer that is frozen in the headlights.
If the stock markets of the Middle Kingdom were either up or down 10% tomorrow, I wouldn?t be surprised.
I?m quite happy with the performance of the Trade Alert service so far in 2016.
Here we are only 8 trading days into the New Year and many traders have already blown up, including quite a few trade mentoring newsletters. We should be hauling in some big numbers in January and February.
This is how you trade a crash. Watch and learn. The opportunities are legion.
We currently have two options positions that are deep in the money, and I just want to explain to the newbies how to best maximize their profits going into tomorrow?s January options expiration.
These comprise:
The S&P 500 SPDR?s (SPY) January $185-$190 in-the-money vertical bull call put spread with a cost of $4.58
The IShares Barclay?s 20 Year+ Treasury Bond Fund (TLT) January $125-$128 in-the-money vertical bear put spread with a cost of $2.70.
Here?s the easy part:
As long as the (SPY) closes at $190 or above at the close, the position will expire worth $5.00 and you will achieve the maximum possible profit. The nine-day gain on the trade will be 9.2%.
In addition, as long as the (TLT) closes at $125 or below at the close, the position will expire worth $3.00 and you will achieve the maximum possible profit here as well. The seven-day profit will be 11.1%.
Since the bond market closes at 3:00 PM EST on Friday, don?t expect much price movement after that.
Better than a poke in the eye with a sharp stick, as they say, especially in these difficult trading conditions.
In this case, the expiration is very simple. You take your left hand, grab your right wrist, pull it behind your neck and pat yourself on the back for a job well done.
Your only problem now is to figure out how to spend your winnings.
Your broker (are they still called that?) will automatically use the long (SPY) call to cover the short (SPY) call, and the long (TLT) put to cover the short (TLT) put, entirely cancelling out the positions.
The profit will be credited to your account on the following Monday, and the margin freed up.
If doesn?t, get on the blower immediately, because broker computers sometimes make mistakes, and they will always try to blame you first.
If an unforeseen event causes the (SPY) to collapse to the downside before the Friday close, such as if oil decides to crater once more, then things start to get complicated.
If the (SPY) expires slightly out-of-the-money, like at $189.90, the position can become a headache.
On the close, your short put position expires worthless, but your long put position is converted into a large, leveraged outright naked long position in the (SPY) with a cost of $185.58.
This position you do not want on pain of death, as the potential risk is huge and unlimited, and your broker probably would not allow it unless you wired in a ton of new margin immediately. It is more likely that they will execute a forced liquidation of your account.
This is to be avoided at all cost. It is not what moneymaking is all about.
Professionals caught in this circumstance then sell short a number of shares of (SPY) on expiration day equal to the short position they inherit with the expiring $185 call to hedge out their risk.
Then the long (SPY) position in the $185 calls is cancelled out by the short (SPY) position in the shares, and on Monday both disappear from their statement.
To minimize risk, traders attempt to sell these shares right at the close. As you have thousands of people attempting to do this at the same time, price action on expiration closes can be wild.
So for individuals, I would recommend just selling the January $185-$190 vertical call debit spread outright in the market if it looks like this situation may develop and the (SPY) is going to close very close to the $190 strike.
Keep in mind, also, that the liquidity in the options market completely disappears, and the spreads widen, when a security has only hours, or minutes until expiration. No one wants to be left holding the bag.
This is known in the trade as the ?expiration risk.?
Don?t worry if you lose money on this one position. Your loss will be more than offset by profits in your February $190 puts and February 187 puts which you independently bought last Friday and Monday. That will give you a generous overall profit.
The logic is the same if the (TLT) looks like it is going to close over $125 tomorrow.
One way or the other, I?m sure you?ll do OK, as long as I am watching my screens like a hawk, which I will be. If I think any action is required on your part, I will send out the Trade Alert in seconds.
One way or the other, you will make money on these trades.
Well done, and on to the next trade.
?This is not a good time to own stocks? said my friend and hedge fund legend, David Tepper, of hedge fund Appaloosa Management.
