TODAY: Turn the Key on Profits at the Open

Hey There Income Hunters,

Can you hear that?

I am REVVED up about Ford (Ticker: F).

I’ve been looking for a good consumer discretionary stock to buy that can capitalize on the massive growth spurt the economy will see when it reopens in the coming months …

Speaking of, can you BELIEVE Texas has been declared “100% open”!?!

They love Ford down there, too.

Have You Driven A Ford Lately?

Ford has  been rallying — but I believe it’s still undervalued in the sector …

So I checked the technicals on it and, lo and behold, one of my go-to technical indicators revealed a bearish signal …

So like any aggressive trader I thought, “Great! I’ll sell now and buy it later.”

You may want to ride with me on this one … If it opens weaker this morning, I’m hopping in.

Watch how to crank up profits with Ford …

Get Ready for $2.667 Trillion in Stimulus THIS MONTH

Hey There Income Hunters,

Janet Yellen would not be a good Texas hold’em poker player …

She just got appointed into the Treasury and she is already going ALL-IN.

On top of the Blue Wave $1.9 stimulus bill, JANYELL will have an extra $767 billion in the Treasury’s account by the end of this month to use as additional stimulus.

Check this out …

Now, the way this will be done is to lower Treasury borrowing of T-Bills and return maturing proceeds to the investors of those T-Bills …

The bulk of those investors are foreign-based and would deposit the money in US banks for safety via FDIC insurance and for portability through the markets …

The problem is, banks here don’t want to take on additional deposits because they are out of balance sheet capacity…


Deposits use up balance sheet bandwidth. After the financial crisis of 2008, the Dodd-Frank legislation forced banks to hold capital against their assets — so there is a limit to how much they can hold on balance sheets …

Now, we know that Yellen knows that. This means she would be forcing banks to negative rates …

I knew putting Yellen, the queen of the Helicopter drop, at the Treasury was a game changer.

However, I didn’t know she would move THIS fast …

These moves will have major ramifications in the markets — and WILL supercharge commodities …

A Rush to Sell Dollars

The interest of foreigners who hold investments in the US is to maintain operational liquidity in currencies other than their own …

However, they are very sensitive to avoiding exchange-related losses … and their dollar balances are the largest foreign exchange exposure they have.

With $5.29 trillion in bank deposits, there is significant room for the foreigners to reduce dollar investments …

If banks move to negative rates on deposits, it could trigger substantial selling of dollars … which would cause a rise for industrial raw materials and imported goods — with little exports to absorb the inflation.

Watch for a Dollar Breakdown

The sign to move big-time into gold and silver is when the dollar takes out the lows near 89-89.25 in DXY (see below) …

Foreign holders could be the sellers who cause the breakdown and that would be exactly what Yellen wants …

 

Bring It Home

As we move closer to dollar debasement, or in other words lowering the value of our currency, precious metals are the asset you want to own …

We are at an excellent level in GLD to put on a bullish trade (see below). The zone highlighted is a 30% correction from the top and buying here provides excellent risk reward parameters.

If the support zone is taken out, close the position. However, GLD could very likely begin a new move higher from here ..

 

The perfect storm of inflation and growth is near, friends.

Keep an eye out for new Power Income videos that will provide bite-sized insight on the Fed, Treasury and Wall Street and money flows …

I’ll make sure you have intel that gives you an edge in the market!

Live and Trade with Passion My Friends,

Griff

Are We Witnessing the Death of Bonds?

Hey There Income Hunters,


“Fixed income” has a nice ring to it — but don’t get fooled by the phrase …


Bonds can be just as risky as stocks!


We are at the end of an 80-year debt cycle and the last 40 have been the most amazing bull market for bonds in history … 



Intended Consequences 


Risk is defined as the potential for permanently losing money … and inflation is the biggest long-term risk to our Investment returns. 


This is a really important issue for retirees and others who rely on fixed income to maintain their quality of life. 


I call inflation the silent killer of returns because you don’t even realize it’s happening…


Imagine


Your bond statement shows you making 5% a year…


However, inflation has risen to 10% … meaning your return is actually NEGATIVE 5%!


And that is just the start once inflation rears its ugly head!


Check out the history of 5- and 30-year bond returns during the last Bear market in the US. (I adjusted the returns for inflation.) …



Moving the Goalposts?

The worst part is, the Fed has manipulated their “official inflation indicator” — the Consumer Price Index (CPI).


In 1990, the Fed was in the middle of inflating bubbles, but also had to keep inflation low … they were obsessed with printing money — but they were bound by an inflation rate of 2% …


So, as they do so well, they changed the calculation to report a more depressed inflation …


With no oversight, they moved CPI away from being a measure of the cost of living needed to maintain a constant standard of living. 


Luckily, a Fed expert named John Williams published all this and how it was done — and  still, to this day, reports the original CPI to show the difference (see the chart below) … 


This was from Reuters on Thursday (emphasis added):


The Fed has said it will not raise interest rates until inflation has exceeded 2% and “we believe we can do it, we believe we will do it. It may take more than three years,” (Fed Chairman Jerome) Powell said.


The current inflation rate by the Fed’s “preferred measure” (meaning made up by them) is about 1.3%.


That’s the same “preferred measure,” that allows them to keep printing even though bond holders’ returns are negative because of the real inflation level.


Check out real inflation based on the original calculation the Fed chose …



Remember: Inflation erodes our bond returns in two ways …

  1. As inflation rates rise, bond rates follow to maintain a risk premium over inflation. This removes any opportunity for capital gains since bond prices move opposite to interest rates. 

  2. If average inflation is above your bond returns, investors’ wealth is reduced.


1970s Example 


In 1971, the link between the US and gold was removed so the Fed could increase money supply.


On top of that, oil price shocks pushed overall inflation higher …  


The 2020s could easily see a period at least as damaging as the 1970s since the Fed is creating significantly greater money supply today … 


As the graph below illustrates, inflation averaged 8% during the 70s. 


So, for example, let’s say you purchased 10-year bonds in 1971 and were paid 6% in annual interest …


Initially it looked like a smart decision with inflation under 5% — however, by the time the bonds were redeemed, you actually suffered through the period losing 2% of your wealth … Every year for 10-years!

That’s lost savings and wealth that you never get back …  


When We Know Bonds Are “Officially” in a Bear Market


First, here are few important things to remember…


  1. The #1 Power Income rule: Don’t Fight the Fed!

The Fed is currently buying $120 billion in bond a month and bond rates have traded higher recently on a consensus narrative of a “possibility of inflation.” … However the long-term bullish trend is not broken …


  1. Inflation, for the Fed, is CPI over 2% for an extended period of time, which I consider to be a year or more…


  1. Bonds are valued by their yield, however they are bought and sold on price … When we look at the bond yield chart, we sell rates/buy bond prices when yields are high and buy rates/sell bond prices when yields are low …


Just picture a see/saw … yields down/prices up and vice a versa:

So, in the short-term the Fed will not let rates rise much further than 1.5 to 2% because they must see an extended period of over 2% inflation before they let rates rise … and they will go to all lengths to make that happen, including:


  • Capping or putting a ceiling on rates by increasing bond purchases

  • Implementing an official yield curve control policy shift … where they announce a level they will not allow (i.e. mandating the 10-year to rise can’t rise past a certain point)

  • Changing their charter so they can buy bonds directly from the Treasury, which would eliminate supply … shifting rates lower


We must wait for the Fed’s next move, let bond yields move lower and test the up-trend line.

Their next meeting is March 16 and we’ll get some clues then. I’ll keep you updated.

  

Bring it Home

I worked for major banks on Wall Street for 20 years and I can tell you …


  • Traders and salesmen are paid bonuses based on how much profit they bring in to the bank … 

  • That is a recipe for moral hazard and you cannot trust that they are doing the right thing for their customers …

  • It’s time to take control of your finances because the years ahead are going to be very difficult for the average investors …

  • Inflation will destroy the rate of returns on any bond holdings you may have in your retirement fund … So, selling bonds can save your wealth AND shorting bonds can make you money …

Live and Trade With Passion My Friends,

Griff

The Vise is Tightening on the Fed

The Fed is in between a rock and hard place — the space is getting tighter every day.


They are helpless and just cheering on Congress at this point.


Check this out … 


The latest numbers are in and the Fed is hiding the fact that they are doing more quantitative easing (QE) than they are letting us know about.


Their “official” QE purchase program is $120 billion per month. And yet…

The Fed has already purchased an additional $68 billion in bonds this month.


Can you imagine where bond yields would be without that?


I shudder to think!


We Are at A Critical Juncture for Stocks, Bonds and Gold… 


Oil is still the safest place to be since supply and demand continue to make it the economy’s most essential commodity.


We have reached a critical point in this stimulus cycle because Bond rates are rising in anticipation of inflation



However, Fed Chair Jerome “J-Pow” Powell is out there denying inflation has risen, even though actual prices consumers pay for essential goods are way above the Fed’s “official” inflation rate …


I hope that J-Pow understands the seriousness of his denial that real prices are rising  …

But based on public statements by him and other officials (more on those in a minute), I have to question if they do.

And historically this is when the Fed makes a critical mistake … 

In other words, by denying real prices are rising, Americans may not be prepared for the inevitable spike in inflation … 

This could cause serious damage to their savings since inflation acts as a tax on cash holdings and all financial investments.

The denial is also putting pressure on gold, which is normally an ideal hedge.

Gold’s price has been pushed down to critical support and if the selling continues it could suffer a bit of a meltdown. See the chart below:


J-Pow & JANYELL

Jerome Powell and Janet Yellen are, in fact, making the situation much worse …


If you listened carefully to J-Pow this week, he was mimicking JANYELL’s balancing act …


This was from Reuters on Thursday (emphasis added):


The Fed has said it will not raise interest rates until inflation has exceeded 2% and “we believe we can do it, we believe we will do it. It may take more than three years,” Powell said. The current inflation rate by the Fed’s preferred measure, meaning made up by them,  is about 1.3%.


Check out what a respected alternative data reporting firm “John Williams’ Shadow Government Statistics” describes the Fed’s inflation indicator:


Methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living. 

Let’s look at the truth in numbers… Below is a chart showing the increase in prices for essential economic goods:


Gasoline +72%, Lumber +52%, Copper +34%, a basket of overall economic commodities +195%….


J-Pow and Janyell’s message is this… we need to go big with stimulus — and don’t worry, we have the tools to handle inflation.


First of all, wrong.


And bonds are obviously not buying their BS. Bonds never do, because bond people know how the Fed operates …


This is the Fed’s model … create one problem, which causes an even bigger problem … then worry about the bigger problem …


Michael Burry, author of the Big Short who called and profited big when the housing bubble burst, tweeted earlier this week, “Hyperinflation, which occurred in Germany in the 1920’s, will happen in the US.”


Let’s take a look at Hyperinflation in Germany at the end of WWI


Please notice the gold trend line. This is where the US is today.


The average consumer is watching CNBC, believing the Fed is in control …


The next stimulus package will make the average American feel more confident… and once the economy opens, people will spend …


Bingo, money velocity — meaning spending activity will rise and inflation will spike.


Once inflation spikes the Fed will not have an answer, the real economy will still be too fragile to raise rates and the government’s only recourse will be more spending …


That is what Michael Burry and many bright people who don’t watch CNBC are worried about …


You should be too.


Bring It Home

Income Hunters, it’s my job to give you the probabilities of what may happen …


I can only tell you what I know about the Fed, history and my honest opinion …


My portfolio is hanging in right now because I have done a reasonable job of protecting it by selling calls and using call spreads to withstand the noise …


However, I believe we are heading towards an inflationary period that could resemble the 70’s … 


So, it is critical to save plenty of dry powder and add to positions on pull backs so you can kill it when the inflation genie comes out of the bottle.


In the meantime trade aggressively and shift into undervalued names and sell overvalued names to maximize returns…


I had a great pick-up in ConEd, which was one of the few stocks that rose yesterday…


Here is my current portfolio…



As always…


Live and Trade with Passion My Friends,


Griff

Another Big Trade in VIX

Hey Traders,

 

The VIX had a huge range on Wednesday, moving from a high of 25.04 to a close of 21.34.

 

When the dust settled, it was a range of 3.73 points after closing just off the lows.

 

If you are a Cboe Global Markets (Ticker: CBOE) shareholder, I have good news for you — there was decent volume in the VIX contract.

 

If you are bullish the VIX, I have bad news …

 

Almost all the large block trades were bearish the VIX between now and April.

 

The biggest trade I saw was an April 23-21 put 1-by-2.

 

A 1-by-2 trade involves buying one put closer to the money and selling two puts further out of the money.

 

This is the type of trade my Pro’s will execute all the time (although sometimes whey will do the less margin-intensive version of this trade called a broken wing butterfly).

 

The trader of a 1-by-2 is expecting the underlying to move in the direction of the play … but not TOO hard.

 

In this case the trade …

 

– Bought 30,000 of the April 23 puts at 1.52.

– Sold 60,000 of the April 21 puts at .72.

 

The net of the trade is a debit of .08. Check it out:

 

 

But Why?

 

To help you better understand why this trade is so great, let’s start by remembering that the underlying for April options is the April future … which closed the day at 26.85.

 

So, while the 23 puts are IN THE MONEY relative to the cash, they are almost $4 OUT OF THE MONEY when compared to the future …

 

If VIX just spins its wheels for the next month, this trader is going to make a LOT of money.

 

Because in about a month, if the VIX is at 21.34, the April contract will be trading about where the March contract currently trades.  

 

The March contract closed 23.85, three points below April.

 

Remember that the trader paid .08 for the 1-by-2 … and VIX March 23-21 put 1-by-2 is trading at .25.

 

While that might not seem like a lot of money, a 212% win on 30,000 contracts that cost you .08 is $510,000.

 

Not a bad return on risk …

 

Plus, if things go right for a trade like that, this spread will only expand in the coming days.

 

The same 1-by-2 in the options that expire NEXT week is trading .90.

 

That is over a 1100% winner for a patient trader.

 

The $240,000 cost of the trade is now $2.7 million.

 

PRO Move

 

We execute VERY similar trades in our Option Pit Pro trading room.

 

The only difference is, we will buy a cheap out-of-the-money put to reduce the margin and risk.

 

(By the way, I’m holding a first-of-its-kind reveal of Option Pit Pro today at NOON EST. If top-level education and lucrative trading opportunities like the one we’re discussing interest you, you should join us for this event.)

 

If I did it as a spread, I can pay less than .05 for the 16 puts.

 

Take a look at the risk profile:

 

 

I have almost no upside risk if the VIX blows higher.

 

My only real risk is if the VIX crashes …

 

This is a risk in an equity option, though not so much in a VIX future that tends to meander lower. (That’s due to VIX futures being European in style, meaning they can only be exercised at expiration, not before).

 

Basically, unless I take this trade into the final week of trading when the VIX futures start to REALLY react to VIX moves — or the VIX goes to 11 — I would have a very difficult time losing on this trade.

 

The Option Pit VIX Light Is Red, and volatility is likely to fall.

 

Your Only Option,

 

Mark Sebastian

Generational Wealth via Options

Everyone would love to have millions in the bank later in life when they have the time to enjoy it …   The decade ahead offers a perfect opportunity to set up a Power Income portfolio that will blast off once America cleanses itself of massive debts and resets to a new beginning …   Here  easy steps to generational wealth:
  • Start building a portfolio of high-quality stocks that return anywhere from 7-12% in yield, with dividends reinvested automatically so your shares grow every quarter …
  • Manage a systematic, disciplined option strategy that will triple your yield to over 20% and reduce your volatility…
  • Invest a monthly amount so that you’re constantly adding shares to average your cost basis and ensure you’re invested at undervalued prices, primed to capture oversized returns in the next bull market …
A great way to add income to your portfolio … Covered Calls Selling covered calls means you get paid extra money as you hold a stock in exchange for being obligated to sell it at a higher price …   That will cap your upside, BUT will generate high income in the meantime — even in a flat or bearish market.   The best time to sell a covered call is when you can calculate at what price your shares would be overvalued …   That brings to mind a recent purchase I made in Con Edison (Ticker: ED).   The first step in the process for selecting a stock in the Power Income Portfolio is to run it through the Power Income Valuation Model (PiVM), which I did with ConEd …       The stock is 15% undervalued and it just came off earnings, which were as expected, and the stock has been trading weak.   So it was time to pull the trigger…   A Current Power Income Trade On Tuesday, I bought 100 shares of ConEd (Ticker: ED) at $67.37   I sold 1 68 strike expiring in 10 days at a premium of $.84   For my purchase at $67.37, I only paid the required margin, which was $2,040 and borrowed the rest at 9.5%…   Let’s review the two scenarios that can occur:
  • ED settles above the 68 strike:
    • I would be obligated to sell my ED 100 shares at 68
    • I would collect my $.84 premium
    • My return on capital of $2,040 would be 6.6% over the 10-day period and 237% annualized
    • That includes the charge for borrowing the balance
  • ED stock settles below the 68 strike
    • I would collect my $.84 premium, which pays me 3.52% over the 10-day period and 126% annualized…
20% Return on An S&P-rated Stock ConEd pays $3.10 a share dividend that yields 4.58%, plus that dividend grows at 3.25%, so total return is 7.83% …   Then to be conservative, let’s say you sell a call each month at $.75 so that is $9, which is almost 3x the dividend payout …   All together, the dividend, capital appreciation on the stock and the option premium amount to a 20% return for an S&P rated stock!   WATCH: A clip of my presentation on the covered call and ConEd’s value from Wednesday’s Power Income LIVE.   Bring It Home There are many stocks to choose from that can be a great addition to a Power Income Portfolio …   I am always available to share ideas and thoughts on how you can build and manage that portfolio on your own …   With a solid, disciplined approach, you will only need to put aside a few hours a week and you will be on your way to generational wealth.   Get started today!   And always …   Live and Trade with Passion My Friends,   Griff  

The Most Important TIP You’ll Ever Get

Hey There Income Hunters,


Today, I’m going to show you a risk-free way to protect your wealth and your quality of life from inflation …


Because as former British Prime Minister Margret Thatcher said …


The lesson is clear. Inflation devalues us all.”


Very true, Maggie. Very true.


Usually!


However


Inflation-protected securities were invented way back in 1780. (In the USA, might I add.)


These incredible securities were developed to protect American soldiers from a decline in their pay during the Revolutionary War…


This solution preserved their quality of life and will do the same for you …


So what is this ONE fixed income security you MUST own in your portfolio?


The One

Here’s the answer …


iShares TIP, the Treasury Inflation Protected Securities (TIPS) Bond ETF


Treasury Inflation Protected Securities (TIPS) are not exposed to inflation risk since the principal invested and the interest received are adjusted higher with inflation measured by the Consumer Price Index (CPI).


That is to say … any income lost due to inflation is recaptured! 


USA & Value to Stay

The US is the world’s largest issuer of these invaluable, inflation-linked bonds. 


With TIP ETFs that track underlying TIPS you can be confident $1 today could buy the same amount of goods in the future.


That’s the greatest value of owning TIPS …


No matter what happens, you preserve your purchasing power … because as the cost of goods goes up, so, too, does the principal amount of your TIP ETF.


TIP ETFs in Action 

Let me be clear …


You gain protection from inflation by owning a stock via iShares TIP ETFs.  


They are extremely liquid and were designed with the help of highly successful fund managers who use them extensively… 


Below is an illustration of how the TIP ETF rose in price once the Fed began printing money after the 2008 financial crisis… 


 

Fundamental Features of the iShares TIP Bond ETF 

  • Investment Objective

    • The iShares TIPS Bond ETF seeks to track the investment results of an index composed of inflation-protected U.S. Treasury bonds. 

  • Management Fees = .19% 

  • Principal Investment Strategies  

    • The Fund seeks to track the investment results of the Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS), which measures the performance of the inflation-protected public obligations of the U.S. Treasury, commonly known as “TIPS.”

Questions about TIPs? Email me at wgriffo@optionpit.com


How It Works: CPI Index Adjustments


The underlying TIPS securities are adjusted on a daily basis by the CPI Index Ratio. 

 

The underlying also pay sinterest every six months, based on the fixed coupon rate of interest. 


And as rates rise, the interest component provides bonus income.

 

For you it’s a win-win … you collect for inflation and interest!! 

 

Bring It Home

Now, you talk about an awesome gift for your family members who need to preserve their retirement nest egg? 


This is virtually risk free because the government must hold all CPI adjustments in a special account to ensure you get paid at maturity …


And the TIP ETF price trend is looking great. Check it out …



Hey and maybe for my special TIP you can send me a few shares since I’m almost old enough to retire!


LOL, until next time …


Live and Trade With Passion My Friends,


Griff

My Portfolio Revealed!

Hey There Traders,

 

Changes in the market narrative come at you fast.

 

Last week, it was all about Treasury bond yields surging and gold trading down …

 

Now, higher inflation and money flowing into inflation hedges are the thing.

 

It’s market whiplash at its best …

 

I stuck it out last week. It wasn’t easy, but I focused on money flow …

 

I mean, you have to trust it.

 

Stimulus is relentless and will be for the foreseeable future …

 

The Power Income Reflation Indicator tracks three key areas of stimulus (M1 Money Supply, Quantitative Easing and Government Spending) …

 

And all cylinders continue to fire: 

 

 

Supercycle


All this reflation is driving a commodity supercycle:

 

    • Monetary policy (QE) has grown bank reserves that end up being used to purchase stocks and bonds
    • This has created a foundation built on inflation not seen since the 1960s.
    • Investors are just realizing this fact and are light on inflation hedges …
    • The chart below shows commodities prices are historically low compared to the broader market, which is helping to drive a stock selloff.

 

    • This will fuel a rally in commodities to hedge against inflation …

 

The perfect storm of increasing demand and limiting supply is upon us.

 

There is a combination of global stimulus, capital scarcity in many commodity sectors, and 50 years of underperformance compared to financial assets that make commodities a great asset class to invest in…

 

This doesn’t mean inflation will be here to stay tomorrow … necessarily.

 

But it does mean any short-term rise in inflation could turn into something significant and long lasting …

 

Remember, the nature of inflation is that it arrives abruptly and with little warning …

 

And in this case, we actually do have signs that it’s approaching.

 

The Power Income Portfolio (PiP):

 

So I’m going to give you a rare glimpse of my full Power Income Portfolio (PiP).

 

Take the opportunity to check it out and get a better sense of how we’re building income for life as the pieces fall into place for inflation.

 

It’s a mix of call spreads, outright longs and covered calls …

 

And you’ll see silver and gold miners, energy mid-streamers and an electric utility I bought just yesterday …

 

A New Addition

 

As of Monday, the Power Income Portfolio has a new addition that’s included in the chart above …

 

Consolidated Edison (Ticker: ED): ConEd operates multiple subsidiaries in the Eastern US. The crown jewel is the Consolidated Edison company of New York, which is a regulated utility providing electricity and gas service in New York City and Westchester …

 

ConEd carries an A-rated credit from S&P, and as of 2020 still has liquidity over $1B in terms of cash/equivalents, and a $2.25B credit facility.

 

They come with a 14% discount according to the Power Income Valuation Model (PiVM). Take a look …

 

ConEd also comes with 46 YEARS of Dividend Growth…

 

That is an incredible number. Check it out …

 

 

ConEd is such a stable, regulated entity you can take advantage of a covered call strategy, meaning selling a call option just above the market to capture down side protection and upside gain, as well… 

 

I purchased 100 shares of ED at $67.40 and sold a 68-call expiring in 2-weeks at $.84…

 

If the stock is called, it’s a two-week return of $144 on $2,000 of capital … 7.2% or 187% annualized.

 

Bring it Home

 

A Power Income Portfolio will provide generational wealth — while also giving you some bullets for speculating on high fliers.

 

For once, you can have it both ways.

 

Live and Trade With Passion My Friends ….

 

Griff