Lemons Into Lemonade
- Ugly day in the markets…
- … which turns up a double-your-income opportunity
- Founder of world’s biggest hedge fund affirms Rickards’ big 2016 forecast
- The return of trillion-dollar deficits, sooner than expected
- What good is a business if you can’t advertise your wares?
- Oil patch bankruptcy, harder than you think… Saudi Arabia and stabs in the back… reader praise for the “perpetual income strategy”… and more!
Whelp… It’s another big “risk off” day.
As of this writing, the Dow is off 380 points, at 15,635. That’s lower than the close last Aug. 24 — the day the index opened down 1,100 points.
The S&P 500 is down more than 2.5%, at 1,831. Ouch — that’s a mere 11 points higher than the lows of October 2014.
Hot money is flooding into both Treasuries and precious metals. With Treasury prices up, yields are way down. The yield on a 10-year note is down to 1.96%, the lowest since last April.
Gold, meanwhile, has crested $1,100 for the second time this month. It’s way too early to say whether it’ll stick this time.
Crude, you ask? All of yesterday’s rally has been wiped out and then some. A barrel of West Texas Intermediate is down 4.5%, at $27.17. That’s another 12-year low.
Still, it’s possible to turn lemons into lemonade: It’s times like these that give you the chance to capture substantial investment income.
“There are certain windows of opportunity that show up periodically (usually only once or twice a year) in which income investors can double the payments they receive from the markets,” explains our income specialist Zach Scheidt.
“These special windows of opportunity are difficult to predict, and when they happen, they usually only last for a couple of weeks. But the income you can make during these windows can dramatically alter your returns for the year.”
How do you know when these windows of opportunity open? Watch the VIX…
As you might know, the VIX is short for “volatility index” — the volume of S&P 500 index options. It’s come to be known as the market’s “fear gauge.”
On this version of the VIX chart, Zach has circled some of these windows of opportunity over the last three years. “As you can see, there have been about five or six good windows over that time period, with the most recent opportunity being an excellent time to capture huge income opportunities.”
Ah, yes, the big spike in the VIX during the market swoon last August. Zach pulled back the veil behind his strategy here in The 5 back then: “When these traders place bets on how far a particular stock could move,” Zach explained, “they’re required to place a ‘deposit’ to secure their bets. Our strategy collects these ‘deposits’ in the form of instant cash payments in our accounts. That’s right, instant.
“The best part is when market volatility increases, these speculative traders are required to put down even higher deposits. So in volatile market environments, our instant income payments actually increase in value.”
Sure enough, during the following two months, Zach’s premium subscribers were able to pull down payments of…
- $517 on Sept. 17
- $520 on Oct. 1
- $600 on Oct. 8.
And that’s only a sample. “During these two months alone,” Zach says, “we collected $8,836 in instant income payments — well above our average monthly income of $2,978 last year.
“I love it when traders panic and the VIX spikes higher,” Zach sums up. “When this happens, the amount of income we can receive from our ‘perpetual income strategy’ moves higher as well.
“Thanks to the VIX moving higher, we’re in a period where our income opportunities are becoming even more lucrative than normal. In fact, we should be able to double our income during this special period.”
Only this morning, Zach urged his readers to jump on the chance to capture an instant $350 as the rising VIX generated another trade signal.
How does this strategy work? And how easy is it, really?
Recently, our publisher, Joe Schriefer — who uses this strategy regularly in his own portfolio — conducted a very… umm… random on-camera experiment just outside the doors of our Baltimore headquarters.
You have to see it to believe it. Your mouth will drop.
The Federal Reserve still can’t get the inflation it wants. The Bureau of Labor Statistics regaled us this morning with the December consumer price index. It fell 0.1% from November.
The year-over-year change works out to a 0.7% increase. Factor out food and energy — the “core” rate — and the year-over-year increase is 2.1%.
Yes, that’s at the Fed’s 2% target… but remember this isn’t the Fed’s favorite measure of inflation. That’s something called “core PCE” — which remains stuck at 1.3%.
And with that, the smart money is piling aboard the Jim Rickards train.
Ray Dalio — founder of the world’s biggest hedge fund, Bridgewater Associates — sees the Fed moving to ease policy during 2016, instead of tightening.
“I think a move to a quantitative easing would bolster psychology,” Dalio tells CNBC from Davos, Switzerland — where the global elite are jetting in for the World Economic Forum’s annual shindig.
Dalio doesn’t buy into the Fed’s signal last month that it will raise the fed funds rate four times this year — especially with global stock markets tanking right now. “This will be a negative for the economy, this market movement. The Fed should remain flexible. It shouldn’t be so wedded to a path.”
It was late last year Jim Rickards said the Fed would move toward an easing stance this year — via a technique called debt monetization. “Governments will pick spending programs to stimulate growth and then incur huge deficits to support the spending. The deficits will be financed with government debt. Then the central banks will print money to buy the debt.”
Which brings us back to the latest projections for the federal budget deficit.
We mentioned yesterday the Congressional Budget Office has projected this year’s deficit will grow, relative to the overall economy, for the first time since 2009.
Here’s another startling stat we overlooked: The CBO says we’ll be back to a trillion-dollar annual deficit by 2022 — three years earlier than previous projections.
“In just 10 years, there will only be enough money coming into the federal government to pay for interest and entitlements… and nothing else,” writes Rep. Mark Sanford (R-South Carolina) in the Fiscal Times.
In other anemic economic numbers, housing starts fell 2.5% in December — more than the “expert consensus” was counting on. Permits — a better indicator of future activity — fell 3.9%.
Still, both numbers are growing strong year over year. “This report is below expectations and soft on a historical basis,” says a summary from Econoday, “but readings still point to respectable strength underway for new housing.”
The perils of the pot business, continued: We keep finding new evidence that investing in legal marijuana is fraught with legal obstacles — especially obstacles that restrict weed to an all-cash business.
Then there’s matter of advertising: “Legal issues are holding back many media outlets, including local and national TV and newspapers, from accepting ads from dispensaries and other pot-related advertisers,” says a report at Media Life magazine.
Last summer, the ABC affiliate in Denver accepted the first TV ad targeting recreational pot smokers. “The ad for the vape pen company was pulled at the last minute,” says the magazine, “due to concerns over violating federal laws, since pot remains illegal at the national level.”
Then there’s the fact Denver TV stations reach satellite viewers in Wyoming and Nebraska — where pot remains prohibido.
Newspapers are also wary: Dead-tree papers are still delivered by mail to remote outposts. In Oregon, where pot is legal, the Postal Service recently sent a notice saying papers carrying pot ads would be barred from postal delivery.
At least billboards skirt these touchy issues…
“The fact that a company would have to hire a legal team just to make sure they were in compliance with state or local laws is enough to walk away on return on investment alone,” says Paris Holley of the MANTIS Ad Network — which places pot advertising.
Holley figures pot advertising will be at most a $50 million business this year, most of it online.
“I am confused over all this talk about oil companies going bankrupt,” writes a reader with a timely inquiry. (As we continue to write, crude is now down nearly 7% on the day, at $26.50.)
“Won’t this allow other oil companies to buy the assets of the bankrupt oil companies for pennies on the dollar, thus lowering the cost per barrel for the acquiring companies?”
The 5: Well, yes. Creative destruction and all that.
The problem is with all the people who lent money to those bankrupt oil companies… and all the knock-on effects. Low oil prices during the late 1980s led to big trouble in the Texas and Oklahoma oil patch, aggravating the savings and loan crisis. Nearly one out of every three S&Ls went under between 1986–1995.
“I don’t blame Saudi Arabia for anything they might do,” says a reader weighing in on Jim Rickards’ forecast that the Saudi riyal will de-peg from the U.S. dollar.
“Our government turning over billions of dollars to Iran proved our loyalty is not to be trusted. Whatever happens, Obama is responsible!”
The 5: We’ll just point out you’re talking about Iran’s own money — frozen by the U.S. government some 35 years ago.
But yes, we’re sure the Saudi princes feel as though Obama stabbed them in the back with the Iran nuclear deal. They also felt stabbed in the back by Bush’s invasion of Iraq — which they knew would empower Shia Muslims friendly to Iran, even if Bush’s vehemently anti-Iran advisers were clueless on that score.
Indeed, Saudi disillusionment goes back even further. “The Saudis have gone off on their own,” says Chas Freeman, who was U.S. ambassador to Saudi Arabia during the 1991 Gulf War.
“They’ve come to that position through a process of evolution over the course of this century beginning with George W. Bush’s decision in the spring of 2001 that the United States could not be more in favor of peace [between Israel and the Palestinians] than the parties and that the peace process should therefore be dropped.
“In dropping the peace process, he deprived the Saudis and other Arab friends of the United States of the cloak that they had used to justify their relationship with Washington to partisans of the Palestinians.”
“This being the first year I’ve had opportunity or inclination to venture into the world of options trading,” a reader writes, “I do want to comment favorably as to Zach Scheidt’s Income on Demand service, which has certainly smoothed the learning curve for me.
“I respect and appreciate clarity in written communication in any arena, and Zach (or his proofreader/editors) does a very good job in that regard. The jury is still out on whether the cost of this service will be worth it in the long haul. He does seem to have a bit of an overly optimistic bias on the housing market, and the Seadrill play (among others) does look like it will continue to be flowing in red ink for some time.
“That being said, I liked his most recent recommendations of JetBlue, Smith & Wesson and a few others, which demonstrate a depth of thoughtful research and sense of market timing dynamics that can only come with years of experience. Yeah, I think Zach’s a keeper.”
The 5: We’ll be sure to pass along your compliments to Zach. And we hope you’re able to pocket some extra payments during this volatile stretch in the markets — or, as Zach likes to call it, the double-your-income window of opportunity. As we’ve demonstrated in entertaining fashion, it’s easier than anyone might think.
The 5 Min. Forecast
P.S. “The video all by itself was awesome,” says a reader who watched the “social income experiment” conducted by our publisher recently.
Which is true, we agree. But aside from the entertainment value, there’s the potential to make thousands of dollars of extra income each month. So far in January, Agora Financial income specialist Zach Scheidt has directed his premium subscribers to opportunities totaling $1,490 in instant income.