Options Hotline Update, today’s new highs, FYI:
+1,036% on TLT puts in two weeks and
+1,033% on QQQ puts in two months!
Strong sell-offs in both stocks and bonds have sent our recommended option plays soaring.
The TLT September $140 put (see 03-01-20 Options Hotline), triggered 03-03-20 at $1.25, traded 03-18-20 at $14.20.
The QQQ March $215 put (see 01-12-20 Options Hotline), triggered 01-13-20 at $4.29, traded 03-18-20 at $48.60…
..with an always known and strictly limited risk!
That is the Superleverage power of my method on display.
I can’t guarantee that all my recos will multiply like these two, but I do promise to do my best to find options winners for you.
Now in our 31st year of publication, we keep a steady hand on the tiller to help you navigate rough and uncertain market conditions.
Subscribe to Options Hotline today to stay a step ahead of the crowd.
Stay safe and take care.
10-year US T-bond yields, weekly chart by Steven Sarnoff, h/t stockcharts.com
“You’ve got to accentuate the positive
Eliminate the negative
Latch on to the affirmative
Don’t mess with Mister In-Between”
— Music by Harold Arlen, Lyrics by Johnny Mercer (1944)
Throughout the summer and now into fall, the spread of very low and, in several nations, negative yields is a glaring warning sign of danger during these uncertain economic times.
As of 10-04-19, here are select 10-year government bond yields:
United States 1.52
Hong Kong 1.04
South Korea 1.36
Buying a negative yielding sovereign bond is akin to paying a government to hold your money. You are buying a loss. Why on earth would anyone do that? One reason is the Greater Fool Theory on display.
Giselle, h/t vogue.com
“My firm uses a model to forecast interest rates.
— Eddy Elfenbein, @EddyElfenbein
Forecasting interest rates is indeed challenging.
Enjoy your weekend.
“The legacy of negative interest rates. If I pay you to hold my money, I am declaring my money unsound. The gold price agrees.”
— Chris Carolan, @spiralcal
The fact that investing in gold doesn’t pay interest has been a strong argument against the Midas metal for ages. But the spreading of calamitous negative yields, as sovereign nations apply beggar-thy-neighbor policies to push on a string and debase their currencies in hopes of spurring slowing economies, sparked gold to reach 6-year highs earlier in the week.
We shall see if there are any winners in the race to the bottom. Gold is affirming its historic role as a store of value.
Obvious Man, from Wiley Miller’s Non Sequitur comic strip h/t gocomics.com, Andrews McMeel Publishing
“This is the greatest non sequitur in finance.”
— Jim Grant, editor of Grant’s Interest Rate Observer
The venerable Mr. Grant is referring to bonds priced to yield less than zero.
Deutsche Bank data shows negative yielding debt has topped $15 trillion, representing 25% of all outstanding bonds.
Negative interest rates are not good. They reflect and forecast trouble. They have serious consequences for investors and sovereign nations.
Who would buy negative yielding bonds? See the Greater Fool Theory.
Don’t be a fool and don’t be cruel. Spread some kindness today.
The Palais Garnier, Paris h/t Rindoff / Dufour via Getty Images
“If you have to sit in the balcony, it’s time to head for the exits.”
The adage above is apt admonition for investors eagerly awaiting a slew of IPOs (initial public offerings), as well as those clamoring for Chinese junk bond yield.
Sometimes it’s better to enjoy the show from afar.
Not this kind of “yield”
“An inverted yield curve isn’t a technical indicator like a moving average. Rather, it has real world implications. If you borrow short to lend long, your profit margin is gone.”
— Eddy Elfenbein
You may be hearing talk of the yield curve in the news. The yield curve is a line that depicts the interest rate of US Treasury debt, of equal credit quality but different maturity, at a set point in time. The yield curve shows the difference between short-term and long-term interest rates.
A normal yield curve has an upward slope, with short-term rates lower than long-term yields. That makes sense, as the interest rate should be higher for the uncertainty of events as you go out in time.
An inverted yield curve is one in which long-term yields are lower than near-term yields for debt of the same quality. This is an unusual condition and is seen as a harbinger of economic weakness.
On Monday, the yield for a 6-month Treasury Bill was 2.49%. The yield for a 5-year Treasury Bond was 2.21%.
The Treasury rate is known as the “risk-free” rate, because it is based on “the full faith and credit of the United States of America.”
That concept is what the global financial house of cards is built upon.
by Steven Sarnoff
On Thursday, stocks slid and investors fled to the perceived safety of US Treasury bonds. Bond prices rose sharply. Because bond prices move inverse to interest rates, that pushed the 10-year yield down to a paltry 2.54% (see chart below) and inspired this morning’s quote from one of our founding fathers:
“An investment in knowledge pays the best interest.”
— Benjamin Franklin
Chart of falling 10-year US Treasury yields by Steven Sarnoff, h/t stockcharts.com
In the future, we may be astonished that rates were so low.
When you invest in yourself, take the time to learn something, and become the best you can be at it, you receive abundant dividends.
It’s worth it!
by Steven Sarnoff
The extended record-setting move up in the venerable S&P 500 is making any self-respecting seller “wanna holler and throw up both my hands,” and many of the weaker shorts are capitulating. This has my contrarian senses tingling.
Let’s have a look at what’s going on in three important markets, stocks, interest rates, and the US dollar.
by Steven Sarnoff
Corporate earnings beats, particularly in the Dow industrials, are propelling panic buying. Central bank monetary largesse and money moving out of bonds (pushing 10-year yields up), along with investor hopes for tax cut legislation is also juicing the market.
I try to tune out the noise and focus on what the character of the behavior of market price movement is saying. Note, in my daily candlestick chart below, the appearance of a “hanging man” followed by a strong negative black candle just as the venerable index is nearing the apex of a bearish rising wedge pattern. This is telling us that buyers are approaching exhaustion and sellers are poised to strike back.