If you want to impress your friends with your vast knowledge of financial matters, then here are the Latin translations of the script on the backside of a US dollar bill.
“ANNUIT COEPTIS” means “God has favored our undertaking.” “NOVUS ORDO SECLORUM” translates into “A new order has begun.”
The Roman numerals at the base of the pyramid are “1776.” The better-known “E PLURIBUS UNUM” is “One nation from many people.”
The basic design for the cotton and linen currency with red and blue silk fibers which has been in circulation since 1957 carries enough symbolism to drive conspiracy theorists to distraction.
An all-seeing eye? The darkened Western face of the pyramid? And of course, the number “13” abounds.
Thank Freemason Benjamin Franklin for these cryptic symbols and watch Nicholas Cage’s historical adventure movie “National Treasure.”
The balanced scales in the seal are certainly wishful thinking and a bit quaint if they refer to the Federal budget.
Study the buck closely because there are soon going to be a lot more of them around, thanks to a deficit that is rising to record levels daily.
What Did You Really Mean, Franklin?
“What to do about asset allocation” is the one question I get every day which I absolutely cannot answer.
The reason is simple: no two investors are alike.
The answer varies whether you are young or old, have $1,000 in the bank or $1 billion, are a sophisticated investor or a basic beginner, are in the top or the bottom tax bracket, and so on.
This is something you should ask your financial advisor if you haven’t fired him already, which you probably should.
Only advisors who read the Diary of a Mad Hedge Fund Trader should merit your attention. At least they’re going the extra mile trying to figure things out.
Having said all that, there is one old hard and fast rule, which you should probably dump.
It used to be prudent to own your age in bonds. So, if you were 70, you should have had 70% of your assets in fixed-income instruments and 30% in equities.
When bond interest rates were plumbing the depths at a 0.32% yield during the pandemic low, bonds were shunned by all advisers. In fact, the (TLT) was one of the best short plays I have ever executed.
But you know what? Time heals all wounds. Maybe it is time to go back to the old rules. With a 4.47% for ten-year US Treasury bonds, 7.5% for junk, 8.8% for senior loan ETFs, and 15% for some REITS, maybe fixed income doesn’t look so bad after all. And they are all about ready to take off with the Fed ready to start cutting interest rates in the coming months.
Just thought you’d like to know.
Allocation: Are You Him?
Or Him?
Global Market Comments
May 8, 2024
Fiat Lux
Featured Trade:
(TAKING A LOOK AT HOME DEPOT)
(HD)
I have been out shopping the neighborhood for good non-tech plays and I found another one.
You are going to think that I am completely MAD by thinking about this trade right now. But I’ve gotten used to that by now.
If you had to pick one sector of the 100 or so that Standard & Poor’s tracks, that is universally hated by all traders and investors, it would have to be the retailers.
Widely viewed as headed for the dustbin of history, many retailers are not going to make it to Christmas, let alone stay in business through 2025.
Do any value screen of all listed stocks, and about half of all the bargain stocks are found in the retail industry.
These are the buggy whip manufacturers of 1901 before they got run over by the auto industry.
Of course, you can blame Amazon, which is rapidly taking over all sales of everything in the US. They have about a 50% market share of all online sales. No wonder the government is going after them with an antitrust case.
This is thanks to their cutting-edge technology and massive economies of scale.
Amazon is probably the number one job destroyer in the US today, with some 5 million retail jobs on the chopping block over the next five years.
However, there is one safe haven that so far seems immune from Amazon’s appetite and that would be Home Depot (HD).
I am using the recent 18% sell-off in the shares to look at (HD), which is occurring, not because of anything Home Depot did, but because of higher interest rates for longer.
Longer term, I think Home Depot will continue to appreciate, as the housing and remodel boom will take off like a rocket once interest rates DO fall. That could be in four months….or sooner.
Then we will have a home remodeling boom that has years to run, and possibly decades. The more expensive homes get, the more inclined owners are to fix up their existing digs. They go to Home Depot to do that.
If you want to make a safer play, buy the iShares US Home Construction ETF (ITB) on this dip, which gives you broader exposure to the real estate recovery and has a much more solid bottom.
Baskets of shares always have lower volatility than single stocks, but lower returns as well.
We just have to give the market a chance to have a few more heart attacks before the current correction ends.
Home Depot is in a tiny retail niche that has so far avoided the Amazon onslaught. There are many reasons for this.
When you need a particular screw, lighting fixture, or unique plumbing part, calling Amazon will get you absolutely nowhere.
You need (HD)’s sympathetic, knowledgeable customer service people, usually retired contractors themselves, to point you in the right direction and assist with a few helpful suggestions.
They’ve done this for me a million times.
Home remodeling and repair is also an industry where a premium is paid for making parts available NOW! A burst pipe won’t wait for an Amazon priority delivery, nor will a leaky roof or broken sprinkler head.
A lot of independent contractors are now not even able to plan supplies weeks or months in advance. They buy what they see.
The home repair and remodel boom will continue, as it is the working man’s solution to high home prices, especially on the coasts, as the profusion of home repair YouTube videos testify. You can fix ANYTHING on YouTube.
While Home Depot recently reported annual revenues of $34.79 billion, up 2.92%. Operating income was reported at $4.8 billion, up 12.82%. Net income came in at an impressive $2.8 billion, up 16.69% YOY. Yet, you get a low 22.7 times price-earnings multiple typical of retailers.
They should do much better in the spring Q2 reporting season. We will know for sure when the company reports on Q2.
This gives us a great discount entry point for a super long-term company, which doesn’t care what the US dollar is doing, which will soon be falling.
“Most of the ETF’s today are your dad’s Oldsmobile,” said Lee Kranefuss of Source Advisors, about the outdated irrelevance for most equity indexes.
Global Market Comments
May 7, 2024
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY),
(GLD), (SLV), (NVDA), (AAPL), (MSFT)
Occasionally, I get a call from Concierge members asking what to do when their short positions options were assigned or called away. The answer was very simple: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.
We have the good fortune to have FOUR spreads that are deep in the money going into the May 17 option expiration in 8 days. They include:
Risk On
(GLD) 5/$200-$205 call spread 10.00%
(SLV) 5/$21-$23 call spread 10.00%
Risk Off
(NVDA) 5/$980-$990 put spread -10.00%
(MSFT) 5/$430-$440 put spread -10.00%
Total Net Position 0.00%
Total Aggregate Position 40.00%
In the run-up to every options expiration, which is the third Friday of every month, there is a possibility that any short options positions you have may get assigned or called away.
Most of you have short-option positions, although you may not realize it. For when you buy an in-the-money vertical option debit spread, it contains two elements: a long option and a short option.
The short options can get “assigned,” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.
You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.
Let’s say you get an email from your broker telling you that your call options have been assigned away. I’ll use the example of the in-the-money SPDR Gold Shares SPDR (GLD) May $200-$205 vertical BULL CALL debit spread, which you bought at $4.55 or best.
For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 8 trading days before the May 17 expiration date. In other words, what you bought for $4.55 on April 30 is now $5.00!
All have to do is call your broker and instruct them to exercise your long position in your (GLD) May 200 calls to close out your short position in the (GLD) May $205 calls.
This is a perfectly hedged position, with both options having the same expiration date, and the same number of contracts in the same stock, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no net exposure at all.
Calls are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.
To say it another way, you bought the (GLD) at $200 and sold it at $205, paid $4.55 for the right to do so for 13 days, so your profit is $0.45 cents, or ($0.45 X 100 shares X 25 contracts) = $1,125. Not bad for a 13-day defined limited-risk play.
Sounds like a good trade to me.
Callaways most often happen in the run-up to a dividend payout. If you can collect a full monthly or quarterly dividend the day before the stock registration dates by calling away someone’s short option position, why not? If fact, a whole industry of this kind of strategies has arisen in recent years in response to the enormous growth of the options market.
(GLD) and most tech stocks don’t pay dividends so callaways are rare.
Weird stuff like this happens in the run-up to options expirations like we have coming.
A call owner may need to buy a long (GLD) position after the close, and exercising his long May 205 call is the only way to execute it.
Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.
There are thousands of algorithms out there that may arrive at some twisted logic that the calls need to be exercised.
Many require a rebalancing of hedges at the close every day which can be achieved through option exercises.
And yes, options even get exercised by accident. There are still a few humans left in this market to make mistakes.
And here’s another possible outcome in this process.
Your broker will call you to notify you of an option called away, and then give you the wrong advice on what to do about it. They’ll tell you to take delivery of your long stock and then post an additional margin to cover the risk.
Or they will tell you to sell your remaining long option position at whatever price you can get, wiping out most, if not all of your great profit. This generates the maximum commission for your broker.
Either that, or you can just sell your shares on the following Monday and take on a ton of risk over the weekend. This generates a oodles of commission for the brokers but impoverishes you.
There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. It doesn’t pay. In fact, I think I’m the last one they did train 50 years ago.
Avarice could have been an explanation here but I think stupidity and poor training and low wages are much more likely.
Brokers have so many legal ways to steal money that they don’t need to resort to the illegal kind.
This exercise process is now fully automated at most brokers but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.
Some may also send you a link to a video of what to do about all this.
If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.
Professionals do these things all day long and exercises become second nature, just another cost of doing business.
If you do this long enough, eventually you get hit. I bet you don’t.
Calling All Options!
“Artificial Intelligence is potentially more dangerous than nukes,” said Andrew McAfee of the MIT Center for Digital Business.
Global Market Comments
May 6, 2024
Fiat Lux
Featured Trade:
(NONE)
While swimming with the hammerhead sharks off a rocky outcrop near the Galapagos Islands in the South Pacific, John Thomas swallowed too much seawater and suffered from too much sun. He collected aloe vera leaves around his house, crushed them, and rubbed the juice over his face. It is now working its magic. Western sun blocks are no match for the equatorial sun.
Our regular service resumes tomorrow.