Q: Is it time to take a punt on the volatility index with the Volatility Index (VIX) this low?
Paul in Florida
A: The answer is yes, but here's the rule of thumb on long (VIX) trades. Go deep out of the money, long dated, and small in size.
This kind of market has been crushing long (VIX) players, so when I say long dated, you want to go out to probably March. The time decay is minimized.
Look at the (VXX) and you probably want to go out to a $40 strike price, compared to the current $32.
That way if you get a sudden bounce back in volatility, you could get a quick double on the call options. We did that in August and that is your trade.
Remember, when you go long the (VXX), you are going against the long-term trend. This thing has gone from 10,000 to 32 in ten years. It is a classic falling knife situation.
Q: Would you buy General Electric (GE) now after the giant drop?
Bill in Amarillo, Texas
A: The answer is NO!
Their business structure is so out of sync with the state of the US economy that they don't have a chance to make a sudden big comeback.
Recovery will be a multiyear process, my guess is that we are setting up here for an L shaped chart. Huge sell off, then a small bounce, then a long flat line move at the bottom until we start to see real progress on the earnings front which is probably years away.
Don't confuse "gone down a lot" with "cheap," always a classic mistake that people make.
Q: Should i be shorting Gilead Sciences (GILD)? The chart looks terrible.
Karl in Midland, Texas
A: Absolutely not.
Never short a stock that is sitting on close to $100 billion of cash. They could do a takeover of another biotech company anytime and get a massive 25% move in a heartbeat. Don't think about shorting things even though they haven't done anything for a while.
Q: Do you love or hate financials and which one would you pick?
Robert in Seattle, Washington
A: My pick is Goldman Sachs (GS) as the laggard and JP Morgan Chase (JPM) as the frontrunner.
Interest rates are definitely going up next year, it's just a question of how much.
Deregulation is a big push and as we start to see the bond market sell off, trading volume increases and that has been a drag on Goldman Sachs' earnings for the past year. There has been poor performance in bond trading because of lack of volume, that will recover next year.
So I am looking for a double in financials over the next 2-3 years from these levels, and it's not too late to get in. You can pick any of these. Even Wells Fargo (WFC) is scandaled out so you can even make money on that one.
Q: Why have bonds not crashed yet?
Peter in Portland, Oregon
A: The reason is our impending Fed sale of $4 trillion in US Treasury bonds (TLT) is being offset by the $5 trillion in new QE created by Europe and Japan. This is why we have had such a dead market for the last couple of months stuck in narrow ranges.
Q: Equities are getting so expensive, is this a good time to look at value stocks?
Miguel in Miami Beach, Florida
A: Value stocks have been utterly crushed this year. All the money has gone into high momentum growth stocks like the FANG's.
However, if you're setting up a long-term portfolio as opposed to a short term trade, value is not a bad idea right here. Buying stuff out of favor with a lot of great value and some of these things will come back big time. Energy is one area i am focusing on.
Q: Are gold miners a better way to play gold than gold (GLD)?
Vince in Salt Lake City, Utah
A: They are. By the way we are long the December $116-$119 vertical bull call spread and we have ample room there to make money.
We have the 200 day moving average as major support on that position to protect this from any weakness.
In fact, if you look at these charts, it's a very weird formation for gold, with a very narrow range and a very gentle move up.
There would of been a much sharper move up in the pre bitcoin world. If you look at the (GDX) and (ABX) the volatility of the miners relative to the underlying gold is about 3 or 4 to 1.
A 10% move up in gold can create a 30% to 40% move up in gold mining stocks. This a great place to get long Barrick Gold (ABX), and you can even go very low risk with something like a $12-$13 in-the-money vertical bull call spread. I will be running the numbers on that one.
Q: Is it smart to hold a small Fang position?
Steve in Carson City, Nevada
A: Absolutely yes, and if we do get a sell off, just add to them. This sector will go up 10 times in the next 10 years. As long as you can handle some pain they will be fine. Remember, Apple (AAPL) every couple of years, sells off 40-45%. As long as you can handle that kind of volatility, just keep on doing it forever.
Remember if you don't sell, then you don't pay any taxes. There is merit in that if you just ignore all the volatility on the FANGS and sit with them.
Everyone who has ever sold them, often never bought them back, or they had great difficulty buying them back after a big chase.
Q: Should a 5% correction in the stock market be bought?
Mike from Daytona Beach, Florida
A: Yes, it will certainly be bought by me. I am convinced that we have 18 months to go in this bull market, and probably no more than a 5% correction along the way.
Q: Is there stuff about energy in the tax bill?
Chase in Boise, Idaho
A: Absolutely yes, tons of it. One of the many things they are trying to slide past in the tax bill without no one noticing is massive new subsidies for investment in oil and gas infrastructure.
When the president talks about infrastructure bills, he is talking about energy infrastructure, not the kind of infrastructure you drive cars on or cross rivers with. It's basically an all oil government right now.
Q: Do you have an opinion on marijuana stocks?
James in San Diego, California
A: I don't want to touch them with a ten foot pole because they aren't allowed to use the banking system. It's still an industry that forces people to carry around suitcases or even truckloads of cash.
They are also still in violation of federal law and I would not be surprised if this government, looking to distract us from other things, suddenly clamps down hard on the legal marijuana industry at the state level.
It's not a good investment choice and I know there is a lot of stuff out there talking about marijuana stocks, but not with my money.
Q: Do you expect changes in the tax reform?
Sam in New York, New York
A: Absolutely yes. In fact, many of the major elements may not make it into law such as loss of deductibility of home mortgage interest or state and local taxes. What they may do is allow a deduction capped say a $10,000 per year for each one and make higher tax payers like me pay the balance.
Q: Are you bullish or bearish on the US dollar (UUP)?
Mark in Omaha, Nebraska
A: I am very bullish long term. The US will be raising interest rates faster than any other country in the world and that is always dollar positive.
Q: What is your long term call on Japan?
David in Laguna Beach, California
A: It will rise twice as fast as the US stock market for at least the next 18 months, and it's not too late to get in there. Do it with the (DXJ), the yen hedged Japan equity ETF.
Q: What do you expect with four Fed vacancies?
Jim in Nantucket, Massachusetts
A: They will be filled with dovish appointees, but I think they are waiting for the new Fed governor, Jerome Powell to take his seat on January 20th and then let him be in the driver's seat on the new appointments.
There is no way that the president is going to allow high interest rates to spoil his economic agenda.
Q: Do you have an opinion on Square (SQ)?
Lars in Sydney, Australia
A: It's up 450% in 18 months. Yes, I love the company. It's a rare example of an IPO that worked in tech. But has run too far, too fast, so don't want to touch it.
That's it for today, folks.
Good luck and good trading.
John Thomas
