Investors have had a lot to process in recent weeks. In fact, after dominating the headlines for weeks, the Greek Debt Crisis got knocked aside by a deal and then a “flash crash” in gold and an elevator shaft-like plunge in Chinesestocks.
And that’s not all. There’s oil, which has fallen back again after rallying a bit earlier in the year. There are worries about if and when the U.S. Federal Reserve will boost interest rates. Then there’s the U.S. bull market in stocks, which celebrated its sixth birthday back in early March – and a tech sector that has pundits whispering about “bubbles” and “dot-bomb” implosions.
So for today’s issue of Wall Street Insights & Indictments, I decided to do something a little different. I sat down with Money Map Press Executive Editor William Patalon III to analyze those challenges, to recommend the best spots for profit and to highlight the strategies we believe will help you make money – and keep what you make.
Here’s an edited transcript of our talk…
Bill Patalon: Shah, we’re looking at a very challenging environment right now, with Greece, China and the array of gold/oil/commodities all in precarious spots – coupled with a U.S. stock market that’s still near record highs. You’ve also expressed concerns about the global bond market.
Is there a unifying thread here? Is there one catalyst – or, to borrow from your investing strategy, a particular “Disruptor” – that could put this into motion by tipping this over?
Shah Gilani: There is a unifying thread, Bill, but it’s more of a common denominator.
I’m talking about debt.
Debt doesn’t have to be a “Disruptor” – as we define Disruptors [the event catalysts, market triggers or other “agent-of-change” forces that create the biggest profit opportunities].
In fact, there’s a good place for debt in capital structuring. But when indebtedness becomes so large, when debt service diverts productive capital into an unproductive negative-loop spiral, we get to where we are today – facing anemic global growth and jumping from crisis to crisis.
We know what happens when households, companies, countries become over-indebted to the point where they can’t service their interest-and-repayment obligations: The paths to bankruptcy, implosion and insolvency are well-worn. Countries don’t usually default – it happens, but not often.
The problem now is: Because of the amounts owed by some countries, without the growth they need to service their debts, which in truth they are only extending and pretending to pay down, the “negative feedback loop” accelerates and they spiral into insolvency.
BP: As you’ve said to me, that’s playing out in more places that investors and other folks realize.
SG: That’s right.
Greece is only the tip of the iceberg. There are plenty of other “technically insolvent” countries getting sucked into the death spiral. Japan is the biggest of them all. But the United States isn’t immune, either. The only thing the U.S. has that other massively indebted countries don’t have is a consumer culture combined with an entrepreneurial spirit – meaning true animal spirits – to arrest and reverse the decline we’re facing.
That said, the way the country’s gone under President BarackObama, spreading the welfare state – robbing from taxpayers to give to tens of millions of citizens and, worse, more tens of millions of illegal aliens who don’t pay income and other taxes – to buy their votes, we’re buying the one-way ticket we fear most, the ride through the endless dark tunnel to poverty.
BP: You’ve talked about several threats here. And you’ve addressed these – and several others – and in the talks that you and I have on an almost daily basis. Is there one or more of these threats that, in your view, warrant more of a focus than others? Is there one thing – one threat or one event or one developing story – that investors should focus on above all others?
SG: No, there’s not one single thing to focus on. Unfortunately, it’s just not that simple. The case could be made that debt is the single most important “developed” story. But debt is the product of other failures. When it comes to investing and making money, the group of things that have to be focused on – with debt in the background – are Disruptors.
We talk about Disruptors here all the time. Some are “Black Swans” – totally unforeseen and having a major impact – while others are “telegraphed” changes that we can see coming at us from a great distance away.
BP: As you’ve so often explained to us, Disruptors are just what the term conveys – catalysts that bring about change. In finance and economics. In technology. And in society, for instance. They’ve always been around, and they’ve always resulted in big, big market impacts.
SG: You listen well (laughing). Disruptors have always been around. And the impact is massive: Those who’ve played them – and played them correctly – have made insane profits.
There’s a difference, now, however. The one-world, world-without-borders theme is happening. If you’re talking about capital movement, we’re not 100% to that point, yet, but we’re really close to being there and keep getting closer all the time.
The fact is that capital knows no boundaries – though it still encounters “speed bumps” – even road blocks – in places like China and Russia and India, and to a lesser degree in Brazil. So capital movement – investors chasing opportunities and fleeing unfriendly investment climates and trends – creates the biggest Disruptors all investors have to be on top of. The only way to be on top of giant capital waves moving in and out of assets, asset classes and countries is to understand where root Disruptors are sprouting.
That’s where the moneymaking and money-losing battles will be played out.
BP: We’re starting to see a number of instances where pundits are saying that today’s Nasdaq reminds them of the “dot-com” bubble of 1997-2000, or the sell-off in China looks just like the Great Crash of 1929. They’re clearly drawing on that old axiom that counsels us to heed the lessons of history. When you scan the capital markets right now – across asset classes, business sectors and geographic markets – does the current climate remind you of any other period as a professional investor? Is there anything to learn from the past? Or are those pundits “reaching?”
SG: The current climate – meaning today’s landscape… today’s big global picture – is unlike any that’s preceded it in history. There are vignettes within the big picture that are reminiscent of past periods, but they are only instructive in terms of how they meld into the bigger picture today.
BP: Give us an example.
SG: Okay, for instance, aspects of corporate growth and power today are reminiscent of the Age of the Robber Barons and their ascendancy after the CivilWar. New structures were being created – trusts with “interlocking boards” and stock pools – and capital was being funneled from public investors, enticed by the prospect of becoming rich as railroads. Canals were tightening up the country by bringing people and goods closer together. And meatpacking, sugar refining, copper and ore mining, steel production and, of course, oil were looked at as get-rich movements that the public could get in on.
Then, as today, the public didn’t understand that the powers at the top – the robber barons and their lieutenants – weren’t interested in the public, only the use of the public’s money to further their personal interests and wealth creation. A lot of so-called investors got burned by the games the barons were playing. Those games are still alive and well – long after trust-busting laws tried to level the investing playing field. So that actually is a case of history repeating itself. If you know your history, you know there were big losers in the game and plenty of opportunities to make money on their downfall and on the changing landscape. We’re there again.
Only this time around it won’t be a Sherman Antitrust Act that leads to changes – it will be Disruptors.
BP: Because I’ve had the opportunity to work with you for so long here at Money Map Press, I’m thoroughly familiar with your achievements and core beliefs. And one of your mantras – one that you underscored to me very early on – is: “There’s always a place to make money. It may be on the long side, or it may be on the short side. But there’s always a place to make money – always.”
That opportunistic mindset – that willingness… and ability… to find ways to make money on stocks and assets that are rising in price or falling in price – is why you offer both a “long” service here (Capital Wave Forecast) as well as a “short” service (Short-Side Fortunes).
Generally speaking, what do you see as the most promising “area” (be it a sector, asset class or geographic market) for “long” investments? You’ve talked about the lending market, the U.S. dollar and the U.S. economy as areas of opportunity in recent months. Given the current backdrop, what do you like now?
SG: There are areas to be getting into right now. And there are different opportunities that are emerging – or that we’re predicting will emerge – as Disruptors break old markets and businesses and create new ones.
Right now, on a purely “given the current environment” approach, good-yielding defensive stocks (meaning dividend yields of at least 4% to 5%) – like tobacco stocks, like AT&T Inc. (NYSE: T) and like telecoms – are the place to be. The U.S. Federal Reservewill raise rates: There’s not much debate on that, it’s just a matter of when. But, policymakers won’t raise rates much and won’t keep raising them: The economy can’t stand a disruption like that when it’s barely healed.
So if we get a small rate hike and dividend-yielding stocks take a little hit, that’s the time to average down and buy more. Amassing a big chunk of big-paying stocks fed by real cash flow – like the telecoms have – is the place to park a lot of capital now. If there are signs of inflation and better GDP growth, then holders of those good-yielding stocks can simply sell “calls” to offset flat or declining prices. And since there’s no need to sell those shares – and because smart investors won’t sell, but will average down, increasing their yield, and because they’ll be selling “calls,” adding to their yield – investors will be able to double the value of those investments in about seven years.
I’m also looking at the U.S. dollar. It’s going higher and is a good investment now. Healthcare stocks are a bright spot, too. I’m also starting to eye some commodities and miners. They have been hit hard and there are great opportunities building there.
BP: You’ve also had a lot to say about oil.
SG: That’s right. I believe oil will be an opportunity, too. Not yet, but the energy patch will come back into favor as soon as the current glut subsides – which I expect it will be a ways off – and if global GDP growth picks up. Now is not the time… I’m too conservative to try and bottom-fish in the black sea of oil.
BP: Great, so we’ve talked about “longs” opportunities here. So perhaps you could answer the same question for “short” profit plays. Over the past few months, you’ve made very detailed, unequivocal and well-constructed arguments for a collapse in bonds, in Europe’s financial sector and for oil-related investments. Is there a “Big Short” looming? Or perhaps several promising areas for trading-oriented shorts?
SG: Bill, as you said in one of your comments a few minutes ago, shorting is more “opportunistic” than long investing. For instance, it’s hard to put on a lot of shorts when the tide is going against you – especially if the bull market gathers itself and stampedes higher.
There’s also the new trading tactic of big players – and smaller trading speculators – to target stocks that have been shorted to the point that 10%, 20%, 25% of the targeted company’s floated shares have been shorted. That’s a target play these days. Especially on big up-move days, traders have been targeting shorts and trying to “gap up” those stocks – hoping to freak out shorts into covering. That’s happening more and more, which makes shorting a tougher game.
All that said, the “squeeze-the-shorts game” is only so effective. If a short candidate is a really good short, the gamers will only squeeze out the weak-link shorts and make the play more compelling at higher prices.
We play that game. It requires patience, and you have to add to your shorts as prices are driven somewhat higher in those squeeze plays. But we’ve made out really well – we’ve had some big winners – because we are patient and average up on our shorts. Greece will become a good short again, in due course, after the euphoria of a deal fades and reality sinks in. We’ve been short China and oil, and they’re working.
I believe the emerging markets could get hit hard from a weakening China and from capital flight. We’ll start putting on some positions there. And, of course, we’re always looking for Disruptors to knock off old, outdated companies who can’t compete with new Disruptors. We love to short those losers.
BP: Given some of the specific uncertainties back dropping the current market, I’ve heard you say that investment management – of short-duration “trades” and of longer term holdings – is crucial. Indeed, I know you say folks need to be conscious of the need to manage their holdings at all times – but you’ve underscored that it’s even more critical now.
SG: There are two sides to successful trading and investing – getting in right and getting out right.
BP: So buying “right” and selling “right.”
SG: Exactly. But getting out gets no love: There’s never much written or offered to individual investors when it comes to trade management and exit strategies. I’ve often thought about writing a book on this very topic – managing your way to profits.
BP: As a follow-on to that, one reader looked at all that’s happening right now and wanted to know: “Is this a bad time to start investing in stocks?” How would you answer that question?
SG: I say – emphatically and loudly – that there’s never a bad time to be in the stock market. And I mean never a bad time. What matters is being on the right side of the market. That’s the important thing – in fact, that’s everything.
You can always make money in the stock market. If you’re long when markets are going up, you’re a winner. If you’re covered on your long positions and short when the market goes down, you’ll be an even bigger winner, because stocks almost always fall faster than they rise. Sure, stocks rise over time, so you should be – you have to be – in the market. But understanding that the market is a two-way street is the key to always being in the market – one way or the other.
The sooner an investor gets into the market and the more they learn about how the game is really played, the sooner they can own the market and their future. Which, by the way, as far as retirement income goes, they won’t have if they don’t work their way into and throughout stock markets.
Besides, it’s fun. How can making money not be fun?
BP: In the years we’ve worked together, there’s one other message that you’ve delivered consistently – that Main Street investors can and should become financially secure… even wealthy. That belief is the why you’re so willing to take on Wall Street… and have been so vocal about the need for reforms that make the markets fair for all. In fact, as I said to you just the other day, your belief system has always reminded me of the newsroom mantra I knew in my old newspaper days – that there’s a need to “comfort the afflicted and afflict the comfortable.” Here’s one other question – one that’s an amalgamation of queries we’ve received from folks here.
If someone came to you and said, “Shah, I want to become wealthy. Tell me what to do.” What six tips would you offer – let’s think of them as a kind of “baker’s half-dozen recipe for wealth.”
Tell us why you believe it’s still possible for any investor to become wealthy and the six steps they need to take to get.
SG: You know me Bill, we’re friends and we talk a lot, so you know how sincere I am about helping retail investors – both first-timers and longtime investing veterans – achieve market success. And by market success, I’m talking about making themselves money.
BP: That’s very true. In fact, I’ve heard you say that investing should be part of every child’s school curriculum.
SG: I’m glad you mentioned that, Bill. It’s insane to me that investing isn’t taught from kindergarten all the way up through high school. For heaven’s sake, what’s the purpose in educating kids so they can get jobs and make money if they’re not taught what to do with the money once they make it?
And there’s no difference whether we’re talking about someone who’s making minimum wage or someone who’s destined to be on salary. This represents a massive chasm in what we teach our kids to prepare them for life. And that needs to change – which, by the way, is something that I’m working on. I’m actively working to change curriculum in schools – to have them teach money management, to make it fun and to make it a game everyone wants to play and win.
BP: Until that happens, you’ve taken it upon yourself to educate investors wherever and whenever possible.
SG: That I have. And much of what I teach is represented by the rules I’m sharing here – the ones you referred to as your “baker’s half-dozen” investing rules.
Saving Is Better Than Spending: You can’t make money if you don’t have the capital to put to work. Besides, if you defer spending – and save and invest now – you’ll have much, much more to spend… later.
You Have to Be in It to Win It: You can’t make money sitting on the sidelines; you have to be in the markets. Whether you’re long, or you’re short, you can’t profit if you aren’t a player.
The Trend Is Your Friend: If stocks are going up, ride them up. If they are going down, ride them down. It’s the big picture that matters. The major trend is more important than finding a needle in a haystack – like finding the one biotech that develops a cure for cancer… good luck with that. With a bet like that, if you’re right you’re a big winner… if you’re wrong you’re a big loser. That’s just far too risky a game for individual investors to play – there are more greedy losers in the world than smart, patient winners. Play the big trend for solid gains… and you’ll be on the side of the winners.
Don’t Be Afraid to Start: You just can’t be so afraid that you never initiate a trade. Too many people are so worried about incurring a loss that they never invest. Losses are inevitable. But you can keep them small by managing your trades. The name of the game that winners play is “I’ll only take so much hurt.” That means get out quickly if a new trade goes against you. Take very small losses on new trades. Which brings us to our next rule…
Always Cut Your Losses, and Let Your Winners Run: For those of you who fear losses (see Rule No. 4), you won’t believe how easy it is to erase a bunch of little losses with even a single good winner. Imagine, then, what it’s like to string together a bunch or winners. Or to have a portfolio of winners because you cut your losers loose, and used the money to “tee up” new trades that have turned out to be all winners. That’s what I call fun.
Ring the Register: Don’t be greedy and expect every one of your winners to grow into long-term blockbuster hits. Not even the great Warren Buffett has only winners. Be happy with big gains. And don’t let your winners turn into losers. Use stop-loss orders to ring the register if your winners start slipping backward. Get out, ring the register and look to get back in if the stock turns around, or look for another trade to put on – because you have to be in it to win it.
BP: Can you share a recommendation or two that your folks should take a look at right now? Besides regularly reading your column, that is.
SG: (laughing)My column is certainly a good place to start. That’s where investors will get good recommendations – including the rationale behind each trade – and will learn about profit-creating market Disruptors. Some of those disruptions will be on the “long” side of the market, and others on the “short” side.
Just as important, readers will learn about trade management and about how the pros play to win.
BP: That’s not a small thing – understanding how the Wall Street pros think and play – is not a small thing. You spent time in the trading pits, on exchange floors and inside top investment banks. But you share those insights with the retail-investing crowd.
So what about some specific recommendations – in addition to those stock types and sectors you mentioned earlier?
SG: The debt issue I mentioned at the start of our talk is big – very big. I’ve been talking about it here for some time. And I think it’s instructive that the arguments I’ve been making – and the analyses I’ve been sharing – are now appearing in such mainstream outlets as Barron’s and The Wall Street Journal.
BP: Respected media outlets.
Not long after I first started talking about this, I put together a detailed research report – one that not only analyzes the problem… but that also identifies the investment opportunity … and it shares specific ways to profit. I would urge investors to take the time to check it out. And if you did read it when it first came out, take the time to look at it again. In fact, you can access it here.
Threats are only threats when you’re not ready for them. When you are prepared, those threats become opportunities. For big profits.
On July 16, I gave you the real story on why oil prices are falling – and a trade to make you some easy money.
Since then, West Texas Intermediate (WTI), the U.S. crude oil benchmark, is down 5%. As of midday yesterday, the October $15 puts on the United States Oil Fund LP ETF (NYSE ARCA: USO) that I recommended buying when they were trading at 50 cents each were up 40%, and trading at 70 cents each.
Here’s what’s happening with oil now – and what to do with your winning USO position…
When Bad News Is Good News
Crude oil is in a bear market – again. It’s down 20% from its most recent highs, set on June 10.
As I showed you back on July 16, oil – being a commodity – mostly trades based on supply and demand. And because there’s been an increasing supply of oil in the face of only a moderate pickup in global demand, oversupply is leading to further price cuts.
Thanks to an explosion of shale oil, the United States is producing 9.7 million barrels of oil a day. That new record, eclipsing the old mark set back in 1970, makes America the third-largest oil producer behind Saudi Arabia and Russia.
Additionally, Saudi Arabia and Iraq are producing at record levels themselves, and Russia is desperate for revenue, which it gets by selling its oil. Then there are prospects that disruptions in crude production in Libya could soon be reversed, and Iran is capable of adding another million barrels a day to global supply, if and when sanctions are lifted.
However you look at it, there’s a lot more oil coming to market in the foreseeable future.
Morgan Stanley (NYSE: MS), whose analysts underestimated the supply of crude coming to market, now says a potential oil crash could be the worst in 45 years.
That’s good news if you’re short oil or short oil-services companies – as we are in my Short-Side Fortunes advisory service.
Or if you followed my recommendation here to buy put options on the U.S. Oil ETF…
As I said, those October $15 puts (USO151016P00015000) I recommended here on July 16 had surged 40%. And with the oil supply rising, there’s room for those puts to go higher – maybe a lot higher.
Here are some options to manage this trade now.
If you think oil will bounce higher from here, sell your puts and grab your big, quick profit.
If you’re bearish on oil like me, I recommend you use a stop-loss to sell the puts if they drop back to 50 cents. That gives oil room to bounce a little from being “oversold” on a technical basis. And it keeps you from losing anything if a bounce turns into a snap-back rally.
I’d hang on and see if oil reverses from yesterday’s pop higher and heads back down. I’d be looking for a big move that sends the put options back up $1, which would mean you’re up 100%.
If the puts get to a $1, we’d know oil prices are slipping and be more comfortable that we’re on the right side of the move and that prices might keep going down.
At a put-option price of $1, I’d sell half the position – locking in 100% there – and hold onto the other half, looking for an additional 50% gain on the remaining puts.
I’d take all my profits there and be very, very, very happy.
If we get the oil-price slide we expect to get, but fear another snap-back rally from there, here’s what to do. After you take your 100% gain on half your position, put down a stop-loss order on your remaining holding to sell if the puts fall back to 75 cents. That way, you make 100% on half your position and 50% on the other half.
I’d be very, very happy with that gain, too.
Of course, oil prices could pop, any time, for any number of reasons- for instance, the Organization of the Petroleum Exporting Countries (OPEC) could agree to production cuts – and your puts could fall quickly. If you’re worried that you’ll lose the profits you have, then any time you’re afraid the trade will go backward on you, sell out and take whatever profit you can.
Because at the end of the day ringing the register with any amount of profit is a good day.
Managing Your Way to Wealth
Murphy’s law tells us that “anything that can go wrong, will go wrong.”
Don’t get caught up in Murphy’s law.
It’s always great to be in a profitable trade. But sitting in profitable trades – especially fast-moving and expiring options trades – requires diligent trade management.
And that means you have to have a plan in place for every trade you make.
If you don’t know how manage your trades, don’t worry, I’ll be talking a lot about such strategies right here.
That’s because I’m going to recommend a lot more trades, like the winner we’re sitting on now. And I want you to become the happiest – and wealthiest – trade-management expert you know.
P.S. I hope you’re all liking and following me on Facebook and Twitter. Once you’re there, we’ll work together to uncover Wall Street’s latest debaucheries – and bank some market-smoking profits.
“This is a stock you have got to own,” ShahGilani told StuartVarney on his latest appearance on Fox Business.
After Apple Inc.’s (Nasdaq: AAPL) quarterly results came out slightly less than expected, Shah explained how analysts have entirely “unrealistic expectations” from the largest, most profitable company in the world.
Even with revenue up, profits skyrocketing and billions in cash, Apple stock toppled $7 in one day. Shah knows why. For his explanation, watch the video below.
Google Inc. (Nasdaq: GOOGL) made major headlines Friday when an upbeat “read” of the search giant’s earnings report ignited a 16% surge in the company’s stock price.
That single-session bump added a whopping $65 billion to Google’s market value. And this came just one day after shares of Netflix Inc. (Nasdaq: NFLX) – another tech darling – zoomed 18%.
These two rallies are emblematic of the relentless march we’ve seen in the tech sector during the past year. And that elicited a warning from former Reagan Administration Budget Director David Stockman, an author and columnist who’s as outspoken today as he was during his White House years.
Google’s $65 billion jump was troubling enough. Not only was it a record for one trading session, but the amount of market value Google gained in a single day was greater than the entire $50 billion worth of Caterpillar Inc. (NYSE: CAT) – which the global heavy machinery franchise took a full century to amass.
In a column titled “Take Cover – Wall Street Is Breaking out the Bubblies,” Stockman said that overvaluation is emblematic of the whole tech sector. On Friday, the market value of the “New Tech 16” was $1.3 trillion – while their net income over the last 12 months was only $21 billion.
“When you take GOOG’s middle-aged profits machine out of the mix, you get something altogether more frisky,” Stockman wrote. “Namely, a collective market cap of $840 billion for the other 15 names in the Morgan Stanley index and LTM [last twelve months] net income of exactly $6.0 billion. That’s a P/E multiple of 140. That’s February 2000 all over again.”
With those words, Stockman is raising the same question that a slew of other pundits are posing: Are we experiencing a ruinous tech bubble?
What I’m telling you here is that all those experts are asking the wrong question – are looking at the market the wrong way.
You see, this is clearly a “momentum” market. And that means you have to make money while you can – while the opportunity is there.
But you also have to be prepared for the day when the music stops.
And today I’m going to show you just how to play the momentum game – without getting disrupted…
Let’s Dissect Tech
What’s happening is that a handful of “momentum stocks” are lifting the major indexes higher, with the Nasdaq Composite Index, home to the hottest of those shares, making new all-time highs on Friday and again on Monday.
Momentum markets – both up and down – are real.
What we’re talking about in this market is the tendency for fast-rising stocks to rise further. Empirical research backs this up. In one study, for instance, researchers found that stocks with strong performance continue to outperform poor performers – with an average excess return of about 1% per month.
That may not sound like much. But take it from me – that’s a meaningful difference.
If academic research isn’t your thing, just look at the stock market, where we’re seeing “momentum” work its power in real time.
Over the last 52 weeks, the 16 stocks in Morgan Stanley’s “New Tech” are up an average of 18.32%, more than double the 7.75% gain of the bellwether Standard & Poor’s 500 Index.
Thirteen of the 16 stocks averaged gains of 32.56% over the past year.
Those 13 are Amazon.com Inc. (Nasdaq: AMZN), Baidu Inc. (Nasdaq ADR: BIDU), Facebook Inc. (Nasdaq: FB), Google, LinkedIn Corp. (NYSE: LNKD), Netflix, Priceline Group Inc. (Nasdaq: PCLN), Qlik Technologies Inc. (Nasdaq: QLIK), Salesforce.com Inc. (Nasdaq: CRM), ServiceNow Inc. (NYSE: NOW), Splunk Inc. (Nasdaq: SPLK), Tesla Motors Inc. (Nasdaq: TSLA) and Workday Inc. (NYSE: WDAY).
The smart way to play the aging – but momentum-fueled – bull market is to keep riding it.
Just because we had a tech wreck before doesn’t mean it will happen again. The hot momentum tech stocks today aren’t nearly as “expensive” as the hot tech stocks of the dot-com bubble of 2000. And the because we’re in a “convergence economy” – where two or more Disruptor-fueled trends mesh in ways that magnify the growth potential – today’s tech market is very different than the dot-com predecessor that still gives us nightmares.
Even so, because of the emotion- and capital-fueled “momentum” effect that I’ve been describing for you here, investors are chasing the hottest performers and driving them higher.
That’s the nature of momentum.
Just as we saw with Google and Netflix, their surging share prices turn the hottest stocks into the hottest stories. That further stokes investment sentiment and draws in buyers who fear being left behind. And that, in turn, extends the rally… which is why momentum begets momentum.
Momentum, when you’re on the right side of it, is good.
So now that we’ve underscored that point, let me show you the key moves to make – now – to extract the maximum possible profit… and to bulletproof yourself against the inevitable downdrafts.
Moves to Make Now
In a market like this one, the one key to profit maximization is making sure that you consistently lift your stop-loss points as the stocks you hold zoom in price. To me, the biggest mistake an investor can make is giving back the profits you’ve reaped on stocks that have had a great momentum run.
That’s why I always have stop-loss orders (or, as I sometimes refer to them, “ring-the-register orders”) in place to make sure that doesn’t happen. I make sure to raise those stop-loss points as my stocks rally and use them to close out backsliding big winners while they’re still at lofty (and highly profitable) levels.
Me personally, I never cry about taking a profit. Even if the stock turns back around and goes higher after I’m out, I’m not unhappy; I rang the cash register.
As the old market adage says, “You’ll never buy at the very bottom, and you’ll never sell at the very top.”
Just make sure you don’t sell out at the bottom after the stocks you hold have been at the very top.
With my strategy, you’ll never commit such a fatal miscue.
Not even if this momentum market collapses.
Indeed, if that happens – and there is a collapse – the tactics I’ve shared here will ensure that you’ll have a pocketful of cash to buy back in… near the very bottom.
P.S. I hope you’re all “liking” and “following” me on Facebook and Twitter. Once you’re there, we’ll work together to uncover Wall Street’s latest debaucheries – and bank some market-smoking profits.
I’ve been trading for very long time. While it’s not rocket science, sometimes it comes close.
Take oil, for example. I can use all kinds of mathematical trading models to trade oil, but I prefer, because it works, to keep my oil trading simple.
Oil is a commodity. That makes it a lot simpler to trade than the stocks of companies.
Commodities mostly trade on supply and demand. It doesn’t get much simpler than that.
We made money in my Short-Side Fortunes investment advisory service when I recommended shorting oil. To me that was an easy call. I saw overproduction in the U.S. shale oil sector adding to global supply, which I knew would result in lower prices.
Since then, oil, as measured by West Texas Intermediate (WTI), dropped from about $100 a barrel to $42 a barrel.
It then bounced off its those, got above $60 where people loaded up as if it was going right back to $100 and hit $63.
Then it started backing off again and is south of $52 today.
Now I’m going to show you how you can make some money here – maybe a lot of money…
When oil tanked people were surprised. When it popped they were surprised. Now that oil is slipping backward – again – people are surprised.
What they didn’t see… what they don’t see… is the supply side of the equation.
Only, it’s not just the supply of oil I’m talking about. The supply of shares of oil companies is weighing on oil too.
I don’t even bother with it in my recent oil trading calculations. Demand is too hard to predict. All I need to know is that the global economy isn’t going gangbusters, so demand for oil is mostly flat – and for the purposes of my oil trading I expect demand to remain flat.
If I see demand changing I’ll adjust my trading. But, to keep my oil analysis simple, to trade simply, I don’t dwell on oil demand.
Supply is all I look at lately.
It wasn’t hard to figure that the globe’s supply of oil was increasing
The United States was becoming a huge producer thanks to massive shale oil exploration, development and production, and the rest of the world’s oil producing countries are in desperate need of revenue.
How simple is that? More supply, and prices will go down.
U.S. producers cut back exploration as fast as they could when prices tanked. It costs money to look for oil and drill wells.
So, the number of “rigs” being leased got cut back week after week after week, and everybody believed that all those drilling rigs shutting down would lead to less supply and higher prices.
And for a while, that’s what happened: Prices began to tick up.
However, oil explorers borrow a lot of money to drill. They need to pump oil and sell it to pay off their loans. So, while the rig count fell on account of the cost of drilling, producing wells kept on producing.
Why would anyone turn off a producing well? They wouldn’t. It’s producing revenue, revenue they need to pay down their loans, for working capital, and something called profit.
Yes, the supply of rigs went down, but dismantling those rigs that weren’t producing oil but costing companies hundreds of millions to employ had nothing to do with dismantling producing rigs.
In other words, the same amount of oil is still being produced. Supply hasn’t changed.
When the price of oil moved up from its lows, and investors and traders thought it was headed right back up, they clamored for the stocks of companies whose value had plummeted.
They believed those stocks were massively undervalued if oil was headed right back up.
Lots of companies, to meet the demand for shares investors were begging for, conducted “follow on” offerings. (A company that has stock outstanding can offer fresh stock to investors in a follow-on offering.) And because investors wanted to grab cheap stock – and because companies wanted to issue more stock and use the proceeds to pay down their higher-cost loan borrowings – it looked like a win-win for everybody.
I didn’t see it that way.
Investors who bought follow-on offerings, which totaled about $15.87 billion worth in the oil patch so far in 2015, watched oil prices decline again and are now sitting on fresh stock they bought near the recent highs.
If you own some oil-related shares that you bought near the recent highs in the price of oil and you’re losing on those shares as they fall along with the price of oil, you’re going to sell at some point. It’s a matter of supply and demand. You have too much supply of shares that are less in demand.
So, share prices are declining again.
Like I said, I keep my oil trading simple.
If you think there’s more supply than demand and that pressure on oil prices will take oil back down to its recent lows, maybe you want to make a simple trade, too.
You can use the United States Oil Fund LP ETF (NYSE ARCA: USO) as a proxy for “oil.”
It’s trading at $17.05. I think it will drop to $15 if WTI drops back to the mid-$40s range. A simple trade would be to buy the October $15 puts (USO151016P00015000) for about 50 cents per contract (that’s actually 50 cents times 100 shares per contract, or $50 per contract).
If USO drops to $15 or lower by the time your put options expire, you’ll make some good money. On the other hand, if oil doesn’t drop and you don’t sell your puts before expiration, you will lose whatever money you invested.
That’s a simple trade to me, based on a simple supply observation.
What do you think?
P.S. I hope you’re all “liking“ and “following“ me on Facebook and Twitter. Once you’re there, we’ll work together to uncover Wall Street’s latest debaucheries – and then we’ll bank some sky-high profits.
The bull market Grim Reaper is here. At least that is what Shah warns on his latest appearance on MakingMoneywith Charles Payne.
“We don’t have a reason to be optimistic, we don’t have a reason to celebrate – we need to make changes,” Shah warns.
Between the latest employment numbers, the situation in Europe and the ongoing fear of rising interest rates, Shah reveals the truth about the market and how we can saves ourselves when the floor drops out from beneath us.
Just check out the video below to see all this and more.
Uber, the ride-sharing service valued at $50 billion, is at the forefront of disrupting the taxi industry.
The price of a New York taxi medallion – the license that allows you to drive a taxicab in the city – has been plummeting since 2013… the first time that’s ever happened.
A medallion would have cost you $1.3 million in April 2013, an all-time high. Now you can pick one up for about $840,000.
And the hospitality industry is taking seriously the threat presented by Airbnb, which puts temporary renters and guests together.
That makes the sharing economy – which Airbnb and Uber are at the forefront of – a major Disruptor. In the sharing economy, instead of buying goods from a corporation, consumers “borrow” – really, rent – assets from other individuals. And companies like Uber and Lyft are the “conduits” that put those individuals together… and take a slice of the profits.
And Uber isn’t disrupting just taxis.
Many members of generations Y and Z, especially ones who live in cities, are forgoing the once-ubiquitous ritual of buying a first car. Rather, they’re depending on ride-sharing outlets like Uber, Lyft and Zipcar.
And that’s making auto manufacturers nervous.
Today, I want to tell you about a carmaker that’s not battling the sharing economy, but joining in by making some major investments in a new kind of “assembly line.”
And I think this company is an investment that you should make as well…
The San Francisco Experiment
In an experiment that runs through November, Ford Motor Co. (NYSE: F) is marketing the Getaround ride-sharing app to 14,000 Ford owners in the San Francisco area. Getaround is a peer-to-peer (P2P) platform that lets people rent all kinds of cars, for as little as $5 an hour.
Why would Ford, which sells cars, want its owners to rent their cars when Ford might be able to sell more cars to rental companies?
Well, as I just showed you, the sharing economy is so potentially disruptive that just about every business needs to figure out how to opt into this new paradigm. If they don’t, they’ll get ousted, just like the taxi industry is now.
Ford knows that Getaround, a San Francisco-based ride-sharing startup, rents all kinds of cars, from Fords to Ferraris (though good luck finding a Ferrari owner willing to rent to you on an hourly basis).
However, this deal is not about renting the cars… it’s about customers buying them.
Here’s Ford’s thoughts here: If the renters like the Fords they rent, there’s a much better chance they’ll eventually buy a Ford than if they had never tried one.
After all, even millennials will one day grow up, have kids and move to the suburbs.
The Dearborn, Mich.-based automaker is only offering the marketing help and access to Getaround to Ford owners who financed their purchases through Ford Motor Credit.
And that’s another reason Ford is taking part in this program. If an owner rents their car, they’re generating revenue. That revenue can augment monthly payments. And if a car is rented enough, rental revenue can easily cover months of payments.
According to Padden Murphy, Getaround’s head of business development, regular renters are averaging close to $600 a month in revenue in big cities served by Getaround.
If you extrapolate out the logic, it’s easy to see that Ford can sell more cars if they help buyers make payments.
Helping to generate revenue from sold cars helps credit-impaired buyers and also buyers who wouldn’t otherwise be able to afford a new car meet financing requirements. It also makes more expensive, higher profit-margin cars more affordable.
It’s a smart move by Ford and no doubt going to be copied by other carmakers and car-loan finance companies.
On the Offensive
Plenty of analysts, market-watchers and thought leaders are excited about the sharing economy
However, not everyone is.
After all, not everyone wants to share.
I’m talking about the entrenched industries the “sharers” are going up against – and their supporters in city halls, state legislatures and Congress.
Just take a look at what’s playing out in the courtrooms concerning Uber.
Most of the company’s drivers consider themselves akin to freelance contractors – and Uber thinks likewise.
That simple relationship is about to change.
Barbara Ann Berwick, a contractor for Uber in California, sued the company after calculating that she was clearing less than minimum wage.
Berwick sued Uber, claiming she was an employee. Under California law, as an employee, Berwick would be entitled to reimbursement of the $4,152 in expenses she laid out.
She won. The California Labor Commissioner’s Office effectively labeled Uber an employer.
Uber also is being sued by taxicab companies across the country for operating without proper licensing and insurance.
In order to continue amassing venture capital at its current prolific rate – in order to survive – Uber probably has to win most of these lawsuits.
Airbnb also is coming under litigious pressure from hotel and apartment owners. What if Airbnb must consider the folks who rent out their spaces as employees, or if those spaces are subject to the same safety requirements as, say, the hotel rooms at your local Marriott?
The results of such litigation will have a massive impact on the entire sharing economy income model.
The Bottom Line
If the sharing economy is going to move ahead, it’s going to have to address the same issues typical businesses face. I’m talking about issues like workers’ compensation, labor laws, healthcare plans, anti-discrimination laws… taxes.
If it can’t, its time in the sun may be nearing twilight.
From users’ perspective, questions abound as well. Who will monitor how services are rendered? How will they be regulated? How will users be protected from bad contract actors? How will service issues be resolved, and by whom?
These are just a few questions that will have to be answered appropriately if the sharing economy is going to continue to spread globally.
That’s why I think Ford’s move here is really smart.
It’s the very essence of an “entrenched industry.”
As such, it has oodles of cash and lawyers and so can navigate the regulatory maze better than the young startups that compose most of the sharing economy.
And for investors like you, Ford’s partnership with Getaround means that it is going to catch the profit wave of a rapidly growing sector.
Your Smart Move
So far, Ford has had a lackluster year. It’s down 4.7% in the last month and 6.3% in 2015. It currently hovers near $14.50.
However, thanks to low oil prices and rising consumer confidence, Ford is on track for a great year.
And that makes its stock very attractive down here. The stock’s dividend yield is 4.20%.
I like accumulating a position in this old-line but forward-thinking auto manufacturer.