Tactical Investment

Posted On Nov 13, 2015 By Dave Gonigam

  • The tactics of taking out a terrorism suspect, applied to the markets
  • So much for the “certain” December rate hike
  • Jim Rickards on the Fed’s “feedback loop”
  • Deflation… but not when it comes to your Thanksgiving turkey
  • Haunted house sued for delivering on its promise… how The 5 made one reader laugh until he cried… an email that stirred up “God” controversy… and more!

So “Jihadi John” is dead. Or we think he’s dead. Or as one of those anonymous “senior U.S. officials” says, there’s a “high degree of certainty” he’s dead.

Jihadi John’s real name was Mohammed Emwazi. He was a Kuwaiti-born British citizen who became infamous last year as the executioner on those ISIS beheading videos.

Presumably they wouldn’t be making a big deal about a U.S. drone strike against him today in Syria without a “high degree of certainty” he’s met his maker.

What’s the investment angle, you ask? An excellent question. Sit tight…

For our purposes today, we’ll leave aside all the “big picture” questions. We’ll leave aside the wisdom of U.S. intervention in the Middle East. We’ll sidestep the ethical issues tied up with drone warfare. We’ll even ignore the fact that Jihadi John was a minor figure within ISIS and that killing him is a cheap, symbolic public-relations victory.

In short, we’ll leave aside all questions of strategy… and zero in on tactics.

Based on what we know this morning, the tactics were flawless. Two MQ-9 Reaper drones targeted a vehicle carrying Emwazi and one other person around 10:50 p.m. local time — 3:50 p.m. yesterday on the U.S. East Coast.

The remote drone pilots and their commanders faced three challenges…

  1. Building a list of probabilities about where Emwazi was hiding.
  2. Gathering enough intelligence to narrow down that list of probabilities to the most likely location.
  3. Acting before Emwazi reached a new hideout.

If they acted too soon, without enough information, they could have easily hit the wrong target. But if they waited to be 100% certain, Emwazi might have reached a new hideout by the time they acted.

Assuming the hit on Emwazi was indeed a success, they found a sweet spot where there’s enough good information to be smart… and enough time to effectively act.

You can apply this tactical approach to the markets, too.

There’s a sweet spot in trading where you obtain enough good information to be smart… and enough time to effectively act.

You can even plot out these two factors — information and time — as lines on a chart.

When those lines reach a certain sweet spot, you act.

For the last 11 months, a task force here at Agora Financial has been identifying potential sweet spots… and seeing how they play out as tactical trades.

The results have been jaw-dropping — 671% gains in the cybersecurity sector… 1,058% gains in energy… 1,616% gains in Treasuries.

We’re not quite ready to take the wraps off this revolutionary tactical approach just yet. Our task force is still refining this system to make it as bulletproof as possible.

I can tell you this much from looking at some of the charts they’ve developed: Investing in these sweet spots might change everything you know about the markets… and deliver you a much more comfortable and secure retirement.

Watch this space for updates early next week.

The two big economic numbers of the morning point to a continuing slowdown… and argue against the Federal Reserve raising rates next month.

The Commerce Department says retail sales rose 0.1% last month. Whoops, the “expert consensus” among dozens of economists polled by Bloomberg was looking for a 0.3% increase.

Auto sales are down. Gasoline sales are down. Electronics and appliances are down. Groceries are down. “General merchandise” is down. About the only things showing meaningful improvement are housing related — furniture, building materials and gardening equipment.

Meanwhile, the Bureau of Labor Statistics tells us producer prices dropped 0.4% last month. Oops, the expert consensus was looking for a 0.2% increase. If you throw out food and energy — the “core” rate — you get a drop of 0.3% and a year-over-year increase of 0.1%. That’s nowhere near the Fed’s 2% inflation target.

And with that, Wall Street is selling off again today. The big indexes are all down at least three-quarters of a percent.

As we write, the Dow is holding on tenuously to the 17,300 level — a 600-point loss for the week. Not surprisingly with the retail numbers, “consumer discretionary” stocks are getting whacked hard. Nordstrom is down 17%, to a 52-week low.

“The commodity slump is rippling through the entire market,” says Greg Guenthner of our trading desk.

When he posted this morning’s edition of the Rude Awakening, crude was still above $42. As we check our screens now, it’s down to $40.65. Copper, meanwhile, trades at another six-year low of $2.18 a pound.

At least gold is holding the line on $1,080 — a low reached in early August. If that breaks, look out below.

Gold-spot price

“Barring an oversold bounce,” says Greg, “gold could easily lose support here and sink to prices not seen since late 2009.

“Your best course of action right now is to steer clear of these troubled commodities. More pain and suffering could be on the way.”

The reports on retail sales and producer prices reinforce a point we’ve been making the last week: “The October jobs report is just one piece of data (albeit an important one),” writes Jim Rickards, “and most other data are showing that recessionary trends are gaining strength.”

Here’s what that means as far as the Federal Reserve raising interest rates next month: “The more it looks like Yellen is set to raise rates, the less likely the rate hike becomes,” says Jim.

“The reaction function to the threat of a rate increase (stronger dollar, weaker exports, more deflation) pushes the Fed away from, not toward, their policy goals. That’s the feedback loop dynamic that has been working against a rate hike since the famous ‘taper tantrum’ in May 2013. It’s happening again.”

We see mainstream affirmation at TheStreet: The numbers this morning “came in weaker than expected and added even more uncertainty to debate over interest rates.”

Gee, the mainstream told us only a week ago a December rate hike was as certain as the sun rising in the east…

Don’t expect the deflationary trends in the economy to defray the cost of your Thanksgiving turkey.

An outbreak of bird flu wiped out 8 million turkeys earlier this year. “That’s boosting wholesale costs for grocers to a record,” Bloomberg reports, “and consumer prices are the highest ever for this time of year.”

There are fewer birds, and those available are smaller — weighing nearly 3% less than they did a year earlier.

Look hard enough and you can still find deals, because turkeys are an effective loss leader for grocery stores this time of year. But retail prices for frozen hens averaged $1.08 a pound as of yesterday, according to the U.S. Department of Agriculture.

Hmmm… Around this time last year, we said 2014 might be the last time you could put together a Thanksgiving feast feeding 10 people for under $50 — at least going by the American Farm Bureau’s lowball estimate. We’ll probably get this year’s figure sometime next week.

We missed this litigious-society milestone for Halloween, but we’ll make up for it by taking note on Friday the 13th.

Late last month, an appeals court in California turned away a claim from a man who visited a “haunted house” and — well, let’s turn to the deadpan language on Page 1 of the ruling…

“After passing what he believed was the exit and ‘giggling and laughing’ with his friends about how much fun they had, [Scott] Griffin unexpectedly was confronted by a final scare known as the ‘Carrie’ effect — so named because, like the horror film Carrie, patrons are led to believe the attraction is over, only to be met by one more extreme fright.

“This was delivered by an actor wielding a gas-powered chain saw (the chain had been removed), who approached Griffin, frightened him and gave chase when Griffin ran away. Griffin was injured when he fell while fleeing. [He hurt his wrist.] Griffin sued… alleging negligence and assault.”

The court told Mr. Griffin to take a hike: “At bottom, his complaint here is [that the defendant] delivered on its promise to scare the wits out of him.”

“Regarding Ray Blanco’s Alzheimer’s drug recommendation,” a reader writes, “as a physician, I researched the company’s work.

“Did I lose money on paper when it lost value after the announcement? Yes. But I did not follow Ray’s stop loss recommendation. I doubled down.

“When knowledgeable short sellers make a play, we should pay attention. When ignorant ones do, we should take advantage.”

The 5: That is, of course, your prerogative.

Here’s where we’re coming from. The name of Ray’s premium service is FDA Trader — the operative word being “trader.” That is, it aims for short-term gains… and if those gains don’t materialize, Ray sets a strict stop loss.

If you have a longer time horizon and you can stand the pain of a short-term paper loss, then yes, by all means you can average down. As we said on Wednesday, the science behind the play is every bit as sound now as it was last week.

“The year that is winding down,” a reader writes by way of correction, “is 2015, not 2016!”

The 5: Ah, yes, the title of Wednesday’s episode was, “Gold: What’s up as 2016 Winds Down.” We were just seeing if you were paying attention.

Just kidding. Your editor suffered a momentary lapse. It’s too late for the email, but we fixed it on our website.

“It started as a chuckle,” writes one of our longtimers about yesterday’s 5, “and then progressed until I had cathartic tears welling in my eyes I was laughing so hard.

“I don’t find much to laugh at these days, but for some reason your photo and caption of Yellen wishing she had gone back to Berkeley as a result of the conundrum she is in was a perfect pairing. My compliments to the editorial sommelier.

“Amazeballs, as my granddaughter would say!

“OK. Back to business.

“Oy!”

And now a few words about a sales message we sent you on Monday with the subject line, “Controversial New Message Mocks God-Haters: Did God just perform a miracle right under our noses?”

“The inference,” a reader complains, “is that ‘nonbelievers’ and atheists are ‘God-haters.’

“For starters, one cannot hate what one does not believe in — how many unicorn-haters do you know?

“Secondly, I doubt that you even know what the word ‘miracle’ means if you equate it with a newsletter teaser. I personally equate utilizing the terms ‘God’ and ‘modern-day miracle’ in newsletter advertising as the very lowest form of product promotion.

“Finally, the name of your company is Agora Financial. What does this kind of alternative medicine sensationalism have to do with finance, other than the money you’ll make off people you can convince to subscribe?”

“I hate to be a nag,” writes an MD, “but whoever makes the headlines needs some education.

“I have actually read David Perlmutter’s book, and it is a very well-researched scientific description of the role of inflammation in brain disease. There is nothing about god-created miracles, nothing about mocking ‘God-haters,’ just scientific evidence of the role of inflammation and what to do about it.

“Why is Agora bringing in a religious theme here? And why the atheist-slamming rhetoric? It’s irrelevant and distracts from a legitimate argument that people need to hear. There is nothing in David Perlmutter’s work about the existence of god. Let’s let science be science, and don’t insult your readership.”

The 5: The promotion comes from Brad Lemley’s Natural Health Solutions, a publication of our Laissez Faire unit — which has been branching out into the “alternative” health space for a couple of years now.

We understand the concerns from all directions: Anytime you mess with religion or politics, someone’s bound to take offense — even if it’s the measured and articulate offense we got on this one. (We never cease to be impressed with our readers.)

The first reader whose letter we shared asked to be taken off the mailing list that receives such promotions, and of course, we have obliged.

On the other hand, we have certain metrics to measure the success of our marketing messages. Based on the percentage of the people who clicked from the email to the promotion, this one was a success. Based on the percentage of people who followed through and bought the newsletter, it was less successful.

Every email we send out — both editorial content and marketing — is a new opportunity for us to learn about your interests and your concerns so we can serve you better. Keep the feedback coming!

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. If we’ve piqued your curiosity and you’re wondering what all this “God” controversy is about, we encourage you to click here — recognizing that you do so at your own risk of offense. The 5 is not a “safe space”!


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