Goldilocks’ Balancing Act
- The economy’s just right
- Hold up…Did Ray Dalio say “recession”?
- Zach Scheidt: How to recession-proof your portfolio
- Economic numbers bonanza!
- Hackers mine crypto…in uncanny fashion
- A reader writes: Debt’s the culprit (that “slithers off into a corner”)
“We are in this Goldilocks period right now. Inflation isn’t a problem. Growth is good, everything is pretty good with a big jolt of stimulation coming from changes in tax laws.”
So said billionaire hedge fund manager Ray Dalio at the World Economic Forum in Davos, Switzerland.
With a “just right” economy, recession seems to have been the furthest thing from Mr. Dalio’s mind in late January.
In fact, “A week ago, Dalio said the sell-off in equity markets — which at that point was just beginning — was a minor correction typical of late-cycle behavior,” Bloomberg reports.
Dalio was so confident in stocks he said “it feels stupid to own cash in this kind of environment. It’s going to be great for earnings and great for stimulation of growth.”
What a difference three weeks makes….
“Frankly, it seems to be inappropriate oversight to not be talking about the chances of a recession and what that recession might look like….” Dalio wrote in a blog post Monday.
But let’s not get too far ahead of ourselves.
Dalio believes the US economy will reach real recession territory in 2019 and 2020 — 18 to 24 months — before the next presidential election.
The reasons for a looming recession? According to the Bloomberg article, “The pressure on equities has been emanating from the Treasury market and the outlook for inflation.
“The Federal Reserve will face growing pressure to increase interest rates after a nearly $300 billion spending package signed into law Friday juices a U.S. economy already souped up on a $1.5 trillion tax cut.”
“There is a whole lot of hitting the gas into capacity constraints that will lead to nominal rate rises driven by the markets,” says Dalio. “We are in the part of the cycle in which the central banks’ getting monetary policy right is difficult and that this time around the balancing act will be especially difficult.”
Speaking of “balancing act”: How can you smooth the way for your portfolio if a rocky road’s ahead?
“The beauty of the instant income strategy…is that we can actually do very well even when the market trades lower,” says our income pro Zach Scheidt. “In some cases, we can actually capture MORE income as a result of the market pulling back.”
We told you about this strategy last week, when the market was going through its most severe convulsions. We got a positive response, so we want to go a little more in depth today.
“Given the market’s recent pullback,” Zach says, “it’s a great time to review why we have a chance to see bigger payouts when the major indexes sour.”
Zach spells out three reasons why you don’t have to fear an economic downturn (whenever it happens):
Reason 1: “Room for a Pullback”
“We collect instant income from the market by selling put option contracts,” says Zach.
Don’t let the jargon put you off. “It may sound complicated,” Zach says, “but these are simply financial contracts that trade on special exchanges just like stocks.”
Here’s how it works: Selling a put contract means an investor agrees to buy shares of stock at a designated price. The investor must buy shares only if the stock’s trading under the designated price when the contract expires.
This is the strategy Zach applies in his premium service Income on Demand: “We’re buying shares only if we can get them at a discount to where they are trading when we sell our put contracts.” Buying at discount means there’s a buffer for the investor should the stock price pullback.
Reason 2: “Instant Cash Upfront”
“When we sell a put contract and enter our agreement to buy shares, we’re getting paid upfront to enter that agreement.” Who doesn’t love instant cash? And the cash serves as another hedge against a dip in the market.
Zach outlines a real-world scenario: “Suppose one of your favorite stocks is trading at $31. By selling a put contract with a $30 strike price, you agree to buy shares of a stock at $30. Let’s say you get paid $1.50 per share to enter that agreement.”
When the put contract expires, the share price has dropped by $1.00 to $29. So you’ve lost a dollar per share; however, because you got $1.50 per share upfront, you really come out ahead by 50 cents per share. See how that cushion works?
Reason 3: “Ongoing Cash Payments”
“We start our income opportunities by selling put contracts,” Zach says. “And sometimes we’re required to buy shares of our favorite stocks if the shares trade lower.
“That’s when the second part of our strategy kicks in…
“Once we own shares of stock, we can then sell call option contracts, which allow us to enter an agreement to sell shares of stock at an agreed-upon price.”
When entering the call option contract, you get paid a premium, earning more income from the shares you own, raking in instant income. “So our strategy actually continues to collect income until we eventually sell our shares and lock in a profit on the total opportunity,” Zach says.
Bonus: When volatility creeps into the market, Zach’s instant income strategy heats up….
Why? Choppy volatility in the US stock market means enterprising investors — speculating on big price swings — will pay more for options.
“The higher prices work to our favor because our strategy is to sell these contracts,” Zach says. “And when selling something at a higher price, we naturally get more income.”
Even in an “average” month, Zach’s goal is to put extra income in your pocket… to the tune of $2,000.
Zach’s readers of Income on Demand could have brought in this instant income…by following his strategy:
- $598 from Square
- $452 from US Steel Corp.
- $325 from Diamond Offshore Drilling
- $327 from KB Home
- $249 from Mittal Steel
- $380 from HollyFrontier Corp.
- $312 from Freeport-McMoRan
- $568 from Bed Bath & Beyond .
That’s an extra $3,211 in your bank account…And that’s a game-changer.
Nobody has a crystal ball; the wild ride the market took investors on last week’s a good reminder that the market can and will go sideways. So you owe it to yourself to explore Zach’s perpetual income strategy. A video walks you through the process…step by step. Check it out here. Don’t wait; we can’t promise this video will be online much longer.
To the markets where…
Gold leaped $20 after we went to virtual press yesterday. Today, $1350.95.
S&P 500 futures are up 9.17 this morning at 2707.80.
Oil’s up at $60.65…some good news for crude.
Bitcoin goes for $9,902.03 this morning according to CoinDesk.
The data gods have delivered a bounty of economic numbers…
- Producer prices: -0.1%.
- Industrial production: 0.0%.
- Capacity Utilization: 77.5% of the nation’s industrial capacity was in use during January, compared with 77.7% in December.
We’re also getting three gauges on the economy’s performance so far in February…
- New York State manufacturing: The Federal Reserve’s Empire State Survey clocks in at 13.1. Any number above zero indicates growth, and it’s been 10 or higher since last June
- Mid-Atlantic manufacturing: The “Philly Fed” survey registers 25.8. Here too, any number above zero points to growth, and this one’s been positive for 18 straight months
- Homebuilder sentiment: The Housing Market Index from the National Association of Home Builders comes in at 72. With this figure, anything above 50 indicates growth. The last time it was below 50 was mid-2014.
“How many human diseases could we someday find out have an infectious root?” asks biotech expert Ray Blanco.
For example, “Cancers aren’t usually considered to be infectious diseases,” Ray says. But infectious agents have been found to cause everything from stomach to cervical cancer.
Now researchers are turning their attention to Alzheimer’s disease, questioning whether the debilitating disorder is actually an infectious disease.
“One of the common features of this Alzheimer’s disease is an accumulation of plaques of tangled beta amyloid proteins in the brain.
“Several companies…have tried to treat the disease by going after clearing these plaques — with varying degrees of success. And by success, I mean nearly all have failed,” Ray says.
One Alzheimer’s treatment in late-stage clinical trials shows some promise…However, the drug comes with risky side effects, including dangerous brain swelling. A case of “the cure is worse than the disease”?
While Big Pharma is moving forward with the treatment that attacks Alzheimer’s plaques — as well as healthy brain tissue — Ray is following the progress of scientists who’ve “identified several misfolded variants on the beta amyloid protein and has tailored…therapeutic agents to hone in on these targets.”
“In preclinical tests, they’ve shown that these agents have a high binding affinity to misfolded proteins, while leaving ordinary amyloids alone,” says Ray.
The nascent therapy shows “significantly stronger binding properties to neurotoxic fractions of amyloid beta in brain tissue with Alzheimer’s disease.
“Furthermore, the company reports the treatment did not show binding to plaques in and around brain blood vessels,” Ray says, “suggesting a lower risk potential for brain swelling.”
Ray believes 2018 is going to be a banner year for this company as it looks to list on the NASDAQ. “It could end up being one of the biggest biotech stories of all time.” And if its therapy effectively treats Alzheimer’s disease, we’d second that sentiment.
Ray’s got this potential life-changing biotech on his radar; we’ll stay on top of it….
The MSM screamed about the demise of crypto last week; hackers didn’t heed the headlines.
In the strange annals of mining digital currency, we’ve discussed the massive output of electricity required to mine the stuff — literally enough to run a small country.
We’ve reported hackers hijacking customers’ laptops at a Buenos Aires Starbucks…to mine the crypto monero.
Oh, and how can we forget the Russian nuclear scientists who attempted to use a government supercomputer…to mine crypto. (Well, that one overlaps with our “dumb criminals” file. Heh.)
Now hackers are targeting government websites to mine crypto. “They’re hijacking thousands of websites,” according to an article at Futurism, “including those that belong to reputable entities like the U.K.’s National Health Service and the U.S. court system.”
The common denominator for these websites is a plug-in called Browsealoud that allows those with visual impairment or low literacy to listen to text.
“In the early hours of February 11, 2018 malware intended to mine lesser-known cryptocurrency monero was added to Browsealoud’s code.
“It ran on some 4,200 affected websites for several hours. So whenever an unsuspecting visitor accessed those sites, the mining script would run in their web browser, without the users’ consent, generating cryptocurrency for the hackers.”
Using “accessibility software” for profit: No one ever accused hackers of being classy.
“And even though Browsealoud had been preparing for such a breach over the past year, according to a company statement, there wasn’t much their clients could do after the attack.
“The hackers didn’t steal any user information (that could be particularly bad for users typing in their most personal identifying information to government websites).
“Yes, breaches are bad,” reports Futurism, “but ultimately, consumers didn’t suffer too much from this one.” Hmm…From this one.
To the mailbag: “Never being one to shy away from an invitation to express my opinion – here goes.
“While everything the politicians and central bankers across the globe (the U.S. does not have a monopoly on the insanity) have been doing is very troubling, the rise in consumer debt is equally worrying.
“Governments can print money and/or declare war on something/somebody (See War on Drugs, War on Terror, etc.) and/or they can inflate their debts away. Consumers do not have these options.
“While consumer debt in the U.S. declined for several years after the 2007-2008 debacle, the tide has now turned in the other direction over the last few years with total U.S. consumer debt now cresting above the 2008 high.
“When the cost of this debt becomes unbearable, either from FED induced interest rates or market discovered interest rates, it is likely consumers will stop propping up the economy setting off the next slide downhill.
“Think Jim Rickards’ snowflake theory.
“The above is the slow death scenario – there is also the chance that a geopolitical event or natural disaster will call the chickens home to roost without any warning.
“Unfortunately, the true culprit (unrestrained debt based on easy money) will likely be allowed to slither off into a corner to avoid taking blame so it can live to start the process over once again.
“Thanks to The 5 for providing a platform for entertainment and lively discussion.
“My only regret is I was not a reader from Day One!”
The 5: Glad you’re aboard now and thanks for the affirmation…no ifs, ands or buts!
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P.S. Readers of The 5 know Satoshi Nakamota invented bitcoin…but you might not know the secret bitcoin indicator that helped one Bloomberg cohost turn $50,000 into a $5 million fortune.
He’s revealing a “backdoor way” you could cash in on bitcoin too — even if you never dreamed of investing in the crypto markets. Click here to see his secret. Don’t wait…this video goes offline Saturday.