After the Panic

Posted On Feb 26, 2018 By Dave Gonigam

  • Dow 30,000? Why Knuckman says it’s totally reasonable…
  • … especially when the numbers point to a late-stage boom
  • Why Altucher’s looking forward to “more gradual” crypto growth
  • Halo-Fi competition heats up
  • Fewer pregnancies, heightened recession risk? (Uh-oh)
  • Worries about a “brief limited war”… a caveat about some traders’ wildly bearish bets… a reader’s entreaty for The 5 to get more political (!)… and more!

“I feel as though I am a conductor on a train that is about to leave the station, shouting to all the passengers… ‘All aboard, last call for the train headed to Dow 30,000!’”

So says Alan Knuckman, our man in the Chicago options trading pits.

“On Friday,” he says, “the Dow Jones skyrocketed to 25,309, an increase of 1.3% for the day.

These 347 points pushed through the resistance wall of 25,200, which are levels we haven’t seen since the end of January.”

As we write this morning, the Big Board has tacked on another 200 points. The rebound is underway.

Rebound

“As long as earnings keep rising and remain strong, stocks will follow suit,” Alan continues.

“And as of Friday, 78% of firms beat earnings per share estimates, and 75% beat sales expectations.”

As for all that volatility this month, Alan says bring it on. Playing options the way he recommends has the effect of limiting your risk.

“Volatility is opportunity! We buy right into extreme dips, picking up quality names at a discount — and sell them into strength.”

During the last three weeks, Alan urged his Weekly Wealth Alert readers to take 235% gains on Twitter in four days… 55% in a week on Bank of America… and 51% on Intel.

How does he do it? Get insight into his system when you follow this link.

Please note: For reasons that will become obvious when you click, this presentation will be taken offline tonight at midnight.

Bonds are rallying in tandem with stocks today.

Bond yields fall as their prices rise… and at last check the yield on a 10-year Treasury note is down to 2.84% — the lowest in a week and a half.

Gold has punched through $1,330, barely, for the first time in nearly a week. Crude’s rebound continues, a barrel of West Texas Intermediate only a few pennies away from $64 again.

Tomorrow all eyes will be on Washington, where Jerome Powell makes his first appearance before Congress since becoming Federal Reserve chairman earlier this month. No doubt traders will be hanging on every word, so don’t be surprised if there’s some squirrelly market action — as happened with the latest Fed minutes last week.

The day’s most meaningful economic number affirms we’re in the late-boom stage of the boom-bust cycle.

The Chicago Fed National Activity Index crunches 85 economic numbers into a single composite figure. The three-month moving average is 0.17 — still comfortably above the historical average and nowhere near recession-warning territory. (The number has accurately forecast all but one recession since 1970.)

But the internals of the report have the hallmarks of a late-stage economic expansion. Job growth is fine… but despite that strength, consumers are strapped and they’re slowing their spending.

The day’s other big economic number, new home sales, disappointed big-time — the pace down 1% from a year ago. Housing bulls say that’s because supply is so tight, and for all we know that’s true. But everything related to housing has been thrown into the proverbial cocked hat, thanks to the new tax law. Millions of potential buyers are re-running the numbers now that the standard deduction is substantially higher… and for people who can still itemize, the deduction for property taxes is sharply limited.

Another marker of a late-stage boom: Private-equity outfits are buying out publicly traded companies at the fastest clip since 2007.

Research from Bain & Co. tallies 152 deals during 2017 totaling $180 billion — almost twice the dollar amount of 2016.

And 2018 is likely to notch even higher numbers, says Bain’s Hugh MacArthur: “There has been a continuous piling in of money into private equity funds,” he tells the Financial Times. “We’ve got an all-time high of [cash ready to be deployed of] $1.7 trillion, nearly 60% higher than at its peak in 2007,” he said.

But MacArthur is well aware this economic expansion is long in the tooth: “The risk of overpaying and holding these assets as we go into a cyclical downturn has to be significant right now.”

“Crypto had an uncharacteristically quiet week as the price hovered near the psychologically important $10,000 price at the open and close of the week,” says crypto-millionaire James Altucher.

Bitcoin remains there this morning — $10,251 — after a quick trip below five figures over the weekend.

Last Tuesday, bitcoin nearly broke through $12,000. “However, the gains didn’t hold,” says James. “And by Thursday, the price returned to levels seen seven days prior.”

Bitcoin’s about-face might have been due to news U.K. officials would be investigating crypto. But government inquiries have come and gone and don’t necessarily signal imminent regulation.

James believes a different crypto story is more indicative of bitcoin’s rise and fall. “As I’ve mentioned in the past,” he says, “with limitations now placed on credit card purchases of cryptocurrency, I expect a rally in cryptocurrency to be much more gradual than we’ve seen in the past.

“Remember… this is a good thing!”

As crypto mania wanes, James anticipates many “scam” cryptos sputtering out. “At that point, expect renewed attention placed on the leaders such as bitcoin and ethereum.” He remains long-term bullish on both.

“A ‘Halo-Fi’ space race is heating up to bridge the digital divide and bring everyone in America, and the world, cheap, fast broadband,” says Ray Blanco, our technology maven.

In a story we’ve been following at The 5, Ray provides an update on a technology that might help Americans cut the cord with big cable — for good! (You might recall a survey we reported: Customers are more satisfied with the IRS than Comcast…Heh.)

Ray says, “Following on the success of its first-ever launch of a heavy-lift rocket, SpaceX just followed up with the lofting of small experimental communications satellites in a bid to build a constellation.

“In May, OneWeb will also begin grabbing a stake in space when it launches its first 10 satellites from French Guiana.”

When testing is complete, these satellites will supply broadband service in Alaska. OneWeb will launch hundreds of ancillary sats that will canvas the globe.

“There’s a race on to improve access not only through space but through ground-based networks too,” say Ray. 

“The Trump admin has identified this as a key national security issue, and network infrastructure improvement may be a part of a future national infrastructure bill. There has even been talk of a government-run 5G network.

“FCC chairman Ajit Pai, however, favors a private approach and has been very favorable to the nascent high-speed broadband satellite industry.”

That’s favorable news for companies like OneWeb, SpaceX and others in this space.

“Electromagnetic spectrum is scarce,” says Ray, “and terrestrial operators are fighting to grab spectrum from satellite operators for upcoming 5G networks.

“Pai, however, has been a vocal and public backer of plans for creating satellite networks that will bring high-speed access to… America.”

While you can’t invest in names like OneWeb and SpaceX — they’re private — Ray’s found a backdoor way to play the trend. As you’ll see right here, it’s still not too late to take advantage.

“The rate of women becoming pregnant begins to fall several months before the start of a recession, research from U.S. academics suggests,” according to the BBC.

Research shows pregnancy rates tapered off and began to fall several quarters before the start of the last three U.S. recessions.

“It was already accepted that birth rates fall in a downturn,” says the Beeb. But the study — following pregnancy and birth stats from 1989–2016 — found “conception rates drop several months before other signs of a recession become visible.

Can Pregnancies Predict Recessions?

“Rates of conceptions grew more slowly, followed by rapid falls in the rate of conception starting several quarters before recessions begin.”

And birth rates dropped more dramatically depending on the severity of the recession… Notice the deep plunge on the chart before 2007.

The researchers judge the pregnancy numbers more accurate than traditional data markers like manufacturing output, retail spending and home prices.

So where do we stand right now, you ask?

According to the National Center for Health Statistics, in the first quarter of 2017, the U.S. fertility rate dropped to the lowest number reported since record-keeping started over a century ago.

Gulp…

“OMG,” a reader writes after last Thursday’s 5: “Brief limited war. Guaranteed to end badly.”

We’re still taken aback by how little news coverage was devoted to the remarks of Sen. Jim Risch on the prospect of a preventive U.S. attack on North Korea. “Mass casualties the likes of which the planet has never seen”? This isn’t a backbencher; Risch is next in line as chairman of the Senate Foreign Relations Committee after Bob Corker’s retirement at year-end 2018.

We wouldn’t know about it at all were it not for the fact a wonk from the Brookings Institution was in attendance at the Munich Security Conference eight days ago and tweeted it out. But the only outlets of consequence that picked up the story last week were The Intercept and The Daily Beast.

On Friday, the president announced still more economic sanctions on North Korea. “Hopefully, something positive can happen,” he said. “We will see, but hopefully, something positive can happen.”

At this stage, it appears Washington is demanding that North Korea give up its nuclear and missile technology before any talks can even begin. That, uhhh, considerably narrows the possibilities for “something positive.”

For its part, North Korea’s government says it’s “very willing” to hold direct talks with Washington. But it appears Washington is willing to talk only as long as the end goal is a de-nuclearized North Korea.

“You are kidding, right?” inquires one of our regulars after Friday’s episode.

“Joshua Belanger says I can exhale? Black swans only happen at about 1% of the time?

“Trader are actively pursuing hedges to cushion the blow if there’s a flash crash in next 29 days and markets freeze up. Fifty percent decline! Institutional investors are protecting their positions?

“Scariest 5 you ever wrote. I am not soothed.

“Post this on Facebook and you’d break the internet.”

The 5: To be clear, sophisticated traders place bets like that all the time. They’re hedges. These people have every expectation they’ll lose money on that bet… but if that 1% likelihood plays out, they’ll win huge.

“When institutional investors buy positions like this,” says Joshua, “they are trying to protect themselves against a possible flash crash. By doing so they are not forced out of positions during a market panic.

“If that does occur, options bet like this could make up for those losses more than 50-fold.”

“After reading your comments about Dylan Ratigan, I was totally confused about your point,” a reader writes.

“I had never heard of Dylan before. I had to listen to it twice after your ‘vaguely sympathetic’ comment about his term of ‘extraction’ because it was crystal clear to me and very well explained. The wealth of our country is being systematically drained in the ways he stated and even I have recognized that for years!

“You may pooh-pooh his efforts to take the Trump route and jump into the ‘swamp,’ but I applaud him and pray for his success! Until more of us have the guts to do that very thing, there is no hope for change.

“What I do have a hard time understanding is so-called professionals, like yourself, who offer advice on how to work within a totally corrupt system with no vision of how to change it. I guess it’s just that some people have the ‘balls’ to at least try to make a difference and some of you don’t.

“Your attitude is the reason Trump’s struggle remains an ‘uphill’ battle. This makes me mistrust you and your entire organization. One thing I am grateful for is the opportunity to respond!”

The 5: From the beginning, our executive publisher Addison Wiggin’s stance — one we’ve always taken to heart at The 5 — is sauve qui peut. It roughly translates to “Let he who can save himself.”

Our one attempt at petitioning the government for redress of grievances fell flat on its face. Five years ago, we launched a petition drive to repeal a law authorizing 30,000 federal drone aircraft, some of them weaponized, to swarm the skies over the land.

The trajectory of a “totally corrupt system,” to use your words, was set long ago. So yes, around here we figure our efforts are better spent helping figure out how to preserve and build wealth.

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Another Weekly Wealth Alert winner: As we were writing this morning, Alan urged his readers to put in a sell order for the second half of their position in Intel call options. Once the orders are filled, it should be good for a clean double — a 100% gain on a trade he recommended a week ago today.

We’re still accepting new readers through midnight tonight. Decide for yourself if this trading system is right for you.


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