(From Thursday's VRA Update). Good Thursday afternoon all. As I type, the markets have taken another turn for the worse, with the Dow off close to 100 points, joining the S&P 500 in the .50% loss range for the day. Most of this week it's been the tech heavy NASDAQ that's been hit hard....following disappointing earnings numbers from the biggies, like Microsoft, Apple and United Technologies. Now, the rest of the market looks like it wants to play catch-up on the downside...but so far, the losses are moderate and contained.
It's a very good thing that we took profits this week...while we may not be making money on the decline right now, we were able to get out of several positions at the top...now, we have fresh powder and can act at the perfect time, either way (notice I didn't say that we can take action at a "good" time...we'll wait until it is the "perfect" time, before we act next).
While the overall economic picture continues to be muddled, the recovery is still happening...but boy, is it ever happening at a slow pace. How Janet Yellen and her FED still plan on raising rates is a mystery to many...including me. The biggest and most costly mistake that the FED could make would be raising rates this fall/winter...if even by just .25%...and then having to turn right around and do a 180 by dropping rates again as the economy heads back into recession. In fact, it's exactly this kind of mistake that would cause people to lose complete faith in the FED's ability to micromanage the economy...which of course is exactly what they have been doing since the 2008 crisis kicked off.
Again, thanks for your continued emails and phone calls....I love sharing in your successes. This will probably be the last that I include for the week, but like our "vacation" email from earlier, I had to share this one as well...we'll call it the "We fired our broker" email (edited for size).
"Kip, I'm not sure where to start, so I'll just say this; our broker did not like your challenge. You told us earlier that if our broker did not believe in active portfolio management, that we should show them VRA results and compare to theirs. Since my wife and I had losses of close to 5% at ---- (firm's name removed), while just this year your total profits are over 500%...well, you can probably imagine how he handled it. After telling us all of the reasons we needed to use a professional, he told us some pretty lame story about his long term track record and making sure people "did not lose money". Kip, we are too young to be that conservative. We really need to make money, so that we can retire in style! We let him down easily, but we also moved all that money to our ---- account (firm's name removed). We love your work and look forward to everything you write. PLEASE keep up the great work! T&E F, Oregon."
T&E, thanks very much for your email. I feel for today's financial advisors...their hands are tied to a large degree and I know from talking to enough of them that their incomes have been slashed over the years. Most are good people and well-inentioned...but they simply aren't able to really help their clients...not like we used to...and certainly not if their clients want to beat the markets by a wide margin. Their firms view this as "too aggressive, and a risk to the firm"...which is just sad. I'm here for one reason....I have it out for Mr. Market, and I want to bash his head in on a daily basis! By doing this, VRA Subscribers have a shot at some pretty amazing returns...as we've seen for a while now.
Consider the following 8 trades...these are all of our buys/sells, since June 29th:
SPY Puts: +100%
ASHR Calls: +94%
SPY Puts: +62%
ASHR Calls: +48%
SPY Calls: +55%
8 Trades since 6/29, with a total gain of 388% (average return of 48.5% per trade)
Knock on wood...I know...trust me, the last thing we want to do is piss off the "investment gods". But all ego aside, this is called "bashing Mr. Markets head in"...and it's the only game plan that I have an interest in.
VRA - MARKET ANALYSIS
The one position that has moved higher since selling it has been our Chinese ETF, and while I know better than to look in the rear view mirror, it's never fun leaving money on the table. ASHR (Chinese "300 A Share" ETF) is trading at $44.25, or roughly $1.50/share higher than where we took profits (don't ask about ASHR calls...they're a full 24% higher). But, that's ok...just know that I'm watching it closely...we absolutely want to be involved for the vast majority of the big move higher thats coming in China.
I've just learned that two of the best macro money managers of our time (Ray Dalio and Bill Ackman) have turned bearish on Chinese stocks. This is significant because they had been two of the biggest China bulls around...making big money from Chinese equities on the way up. In their view, the recent actions out of China could signal an economic top as well as an investment top...and that the move lower going forward could be significant.
While I remain long term bullish on China, it's difficult for me to argue with these two guys. They aren't like 99% of the talking heads that you'll see on CNBC. These two manage LOTS of smart money, and when they are of the same mind on a single investment story, we would be fools not to pay attention to what they are saying...and we're not fools...so we will be paying attention.
COMMODITIES - OIL COULD BE HEADED SHARPLY LOWER
Of course, this past week has been hard on all commodities, not just gold and silver (which continue to look like they want to go lower still, at least for the very short term). Quietly, oil has now dropped to a fresh two month low, and for the first time in a long time is trading below $49/barrel...with a last trade of $48.70.
Below is the 1 year chart for USO, the Oil ETF that investors use to trade the commodity itself, and the same one that we have used in the past (along with UWTI, which is the 3 x Bullish ETF for Oil)
I've made notes in the chart, and have drawn a blue line at that most important support level from this past March, which we are just 4% above today. There's nothing at all to like about this chart folks...oil looks very much to me like it wants to trade lower, however, like every other major commodity, it's very oversold right now...which you can see from the stochastics area in this chart as well. IF we get a bounce, it could be a very short term one...
I don't have a recommendation either way here...at least not right now...just know that it's one of about 25 key charts that I am following right now.
Final Point: With the collapse in commodities...the recent mini-crash in China...and now, the NASDAQ and broader markets getting hit pretty hard, in combination they just may be telling us that something "different" is going on here. I don't know exactly what that "different" may be at this point, but whether its another global recession, or just the summer blues, there's not a lot to be optimistic about.
And certainly, the reasons for the FED to raise rates appear to be dropping like flies. Let's hope they are paying attention. Until next time, thanks again for reading...Stay Vertical!