Hey everyone, hope you are enjoying a good start to the summer months. Here at our User Group we are having another solid year and look forward to a great opportunities as we move thru the summer months. We are running Option Strategies that really does not pay too much attention to price action or Volatility with returns keeping everyone solidly in the green! Enjoy this week’s sound bites below and our Weekly Round-Up;
Weekly Sound Bites:
• This past week’s theme was Stocks are from Venus and Bonds are from Mars…stocks are at record highs while Bonds are driving interest rates to record lows; the former suggesting strong economic expansion and the latter suggest recessionary fears are coming…we saw the US/Mexican trade issues resolved, Central Banks shift their guidance lower and while also giving us a more Dovish tone while some positive news on the US – China trade front hit the news wires…
• In May, markets fell 7% and in June we’ve seen markets climb over 7% to recoup May’s downdraft; –mostly on the backs of Central Bank’s language of more stimulus and lower rates to come. The fall in Global interest rates have now driven the total debt yielding negative rates over $13 Trillion Dollars…from its lows this past December the S&P is up over 25%! If Yoda, the infamous Jedi knight on Star Wars was a trader he would say, “Careful we must tread here, the presence of the Dark Side is everywhere” …we can still see the factors that led to higher volatility still present in the markets; -rising trade and technology tensions and slowing manufacturing data leading to lower overall Global growth…add to this the trade tensions and the potential conflicts looming in the Persian Gulf…
• Everywhere channel I turn to I see TV Talk’n Heads predicting gloom and doom with recessions coming, especially with the current inversion of the Yield Curve…yet in my humble opinion, I see things a bit differently…with an accommodative Central Banks over all the Globe, lower rates has the tendency to spur more stock buy-backs (which exceeded $1 Trillion in 2018 and could go higher in 2019) while also allowing for expansion of PE Multiples…for me, I see the 3050 to 3100 levels in the S&P before profit taking and a shift in overall market sentiment will force more aggressive defensive action…
• Eventually higher interest rates will be the potential undoing of ES Equities…for the past 20 years the Gross Federal Debt has risen from $5 Trillion to $22 Trillion USD while interest rates have fallen from 6.5% down to current levels around 2%….servicing current debt levels at higher rates will force Politicians to take very hard actions against our Debt and the Equity markets will be punished severely…by that time Inflation will also come back out of hiding which will complicate matters even further…
• And with the probabilities of more rate cuts to come (almost 100%) there’s some evidence that the current price action already reflects that possibility with the S&P now trading for about 17.3 forward earnings which is not far off its peak from last September at 17.34…This tells me the markets seem too overly optimistic things will work out just fine…and in my experience, when everyone moves to one side of the boat to see the whale breach, the sucker swims underneath the boat and surfaces on the other side leaving many wondering what happened…
• Gold has also broken out of key levels and as I have told our User Group Members, once a break over 1375 holds then more upside could follow…The bad rap against Gold is that it has a zero yield but in a World where there are $13 Trillion on bonds yielding negative rates then Gold becomes more appealing…not to mention a big of a hedge against more escalations in the Persian Gulf and a weaker USD, Gold should maintain upward momentum…The DOW is worth about 19 ounces of Gold vs about 22 ounces during last September’s highs…in 2011 Gold was far cheaper at only about 7.8 ounces to buy the DOW…so it is still a cheap form of insurance…
• If interest rates stay low or go lower then sectors such as Technology (XLK), Communications (XLC), and Real Estate (XLRE) look where money will flow…also lower interest rates will tend to drive up Emerging Markets (EEM)…
Enjoy our Trader User Group Weekly Round-Up;
Don’t Be A Rat Brain Trader – Be the Red Striped Zebra
Trade Smart !!
hpb
