Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Options Explained
The Basics
Buying an option gives you the right to buy (call) or sell (put) 100 shares of a stock at a specific price (strike price) on or before the expiration date. Buying calls is bullish, buying puts is bearish. To buy an option you are going to pay a premium as the other party will be accepting risk with the trade.
If you believe a stock is going to go up past a certain price on or before a certain day, you buy calls.
If you believe a stock will go down past a certain price on or before a certain day, you buy puts.
Selling an option obligates you to buy (put) or sell (call) 100 shares of a stock at the strike price on or before the expiration date, really whenever the buyer wants to exercise the option.
If you believe a stock is going to trade sideways or drop in price, you sell calls.
If you believe a stock is going to trade sideways or raise in price, you sell puts
Same institution that brought us “no tech bubble” in 2000, “subprime contained” in 2007, “green shoots” in 2009, “funds rate through neutral” in 2018, “transitory” in 2021, is now peddling “higher for longer” in 2023. Fade the Fed
Investors have paid a hefty price for mistakenly calling the “Fed pivot” multiple times this year.
What’s the next expensive mistake?
My vote goes to:
“The upcoming weakness in the labor market is bullish for stocks”.
No, it’s not
The Bank of England’s “let them eat cake” moment: Andrew Bailey joined with a colleague in suggesting inflation is too high because workers are demanding exorbitant raises. His prescription: workers should settle for less money.
BARRON’S: “Investors are positioned for the worst .. The only problem: They may be positioned for a bear market that already occurred. And the higher the $SPX goes .. the more likely it is that bearish investors will have to start buying..”
for the foreseeable future, brace yourselves for higher real estate prices, primarily due to expectations of enduring high-interest rates.
these high mortgage rates discourage sellers from parting with their current properties, leading to a slump in supply and spiking buyer competition.
this is classic economics: prices are bound to escalate when supply is sp**** and demand is high.
Banks are complicated beasts. Exposure to interest rate rises is absolutely fundamental to risk, stability, net asset value and profitability of a bank's balancesheet.
The basic 'banking' model is ... A)
acceptance, safeguarding and repayment of cash currency deposits made by customers on demand perhaps (you'd be lucky these days) with some interest; B) lending capital - against liquidity from customer deposits on its balance sheet (levered up, naturally; praise be... the fractional reserve system love - to third party borrowers, repayable over time, on which interest for the use of the funds is charged.
If B generates more revenue than A + B
costs to administer plus any losses from borrower default re B, then you've got a profitable bank :)
Raising interest rates will likely change the profile of A (liability to payment of interest on deposits to customers; cost of provision) and of B (loans with floating interest rates pegged to the Fed's main policy level should yield more). In theory, at its simplest.
But the main downsides for banks when rates go up is that: cost of their own funding in the money markets also increases (not by as much, but noteworthy) borrower default rates tend to increase from greater challenge of maintaining larger payments from additional interest
What this means is that impact on a bank from
interest rate rises can be hard to understand, since it will depend on what their loan books are like.
Bear markets can feel like the end of the World but remember, every crash has been followed by bigger rallies.
If it’s just a market crash, things will bounce back. If it truly is the end of everything, money will be worthless.
Market crashes have taught me to keep buying.
If you're "investing" for the next month, then a market drop is bad news.
If you're investing for the next decade, then a market drop is great news.
Market drops are an opportunity for long-term investors, not a risk.
If you're scared of losing then you have already lost.
When it comes to investing, paralysis through fear is a big threat to wealth creation.
Creating and sustaining wealth requires looking past negative headlines and rising above negative confirmation bias.
When the best time comes to buy in a market drop, you won’t want to buy.
The best time to buy generally comes when nobody else wants to buy.
Other people’s fear to buy tends to make investments cheap (because they oversell).
Sellers will push prices lower and lower until it’s no longer justified to continue selling.
Buyers will then outweigh sellers which brings prices higher.
Soon, prices exceed the decline’s underlying values and the sellers return. This is the market cycle.
Bear markets are a normal part of the stock market.
Since World War II, there have been 9 drops of 20%-40%, and 3 drops over 40%.
Many reference that Japan's market crash hasn't recovered for decades, and that the U.S. will be no different.
However, the U.S. P/E ratio is ~20 & Japan's was ~60 (3x worse).
The USD is also the World reserve currency, which plays a big part in the recovery of the economy!
You can’t control the markets, but you can control how you react to volatility & swings.
The key is to zoom out from any particular period and focus on the long-term trend.
It can be an easy decision to take your money out of the market due to fears, but this creates a bigger challenge, finding the "best" time to re-invest your money and come back in.
Most times, what was supposed to be a temporary move out of the market, becomes a permanent one.
The truth: The Fed is so behind the curve it has no ammunition to deal with a real crisis. It's now forced to puke into rate hikes to create ammo to then be able to offer stimulus again.The market knows this hence pricing in rate cuts by end of '23.
I keep seeing people showing concern this is a bull trap and then everyone tells them that this mentality is going to get them in a state of regret. The thing is, a major recession is always accompanied by some of the largest bull rallies on the way down and accompanied by characteristics that people never think that it's going to go down again.
What seems obvious to me is if you look at the
market, over the pandemic it skyrocketed in the fastest and largest bull market in history, but meanwhile there were global lockdowns and businesses shutting down left and right, the government went into accelerated debt and all this growth was literally free money being pumped into the markets from the Central Bankers. Where do people get the idea that a major correction isn't due/over? Where is the abundance of production and profits that would justify the market still being this high? (Especially if prices and evaluations are quantified next to inflation, the real inflation is also much higher than the manipulated 8.5%)
While the job market is doing relatively well, there are still reports of large layoffs happening and showing no sign of slowing. We have had literally One single good report but anyone that read the report saw that food, shelter and energy were still up, and food shortage issues are expected to get worse toward the end of the year.
But the biggest hint of all is that the Fed still has made no signs of a pivot and I think a lot of people are confusing inflation being past it's peak with the actual issue being resolved. Supply chains are barely recovered, inflation around the world is way worse than America and if their economies hit hyper
inflation their contributions to supply chains will only get worse.
I'm just going to say it: there is no full resolutions to justify the markets at these prices. There are too many signs showing this is an emotional (greed) bull rally trap. None of the underlying problems have been solved, monetary policy will not change until
at least 4-5% inflation, and instead of the Russian situation getting better- intel shows when winter comes it will only get worse and China/Taiwan is now a potential new threat. Maybe this rally will last another month or so, but new all time highs are probably not until after another downturn.
6 back-to-back BoE rate hikes almost priced in. Surely only downside risks to this (albeit that's what many thought before today). Pain trade of higher short-term rates continues. Not sure how UK consumer handles higher rates + squeeze on incomes. Cue 2023 recession talk... £GBP
You and everyone else are currently looking at the next NFLX like earnings play. One think is for sure, tech earnings will be volatile and results at the tail end will be more likely then usual. Tail ends are usually hard to predict and the statistic models that calculate premiums usually underestimate them. So it might be the best time to steal from the a gang.
That said, I think we’ll see two types of tech ER scenarios going forward. Type 1 will be the NFLX repeat, taking everyone by surprise. More likely will be type 2, everyone is getting scared and the stock tanks before ER and goes up after.
Next week we have reports after hour from:
Tuesday MSFT
P/E is 33.11
I think this will be type 2
Wednesday TSLA
That’s where it gets real interesting.
Tesla P/E is an astronomical 306, everyone expects a super bullish Tesla ER, the slightest hint at growth problems and it might tank spectacularly. I think this could be a type 1.
This high P/E provided the reason for the CEO to dump $20 billion dollars worth of stock in the last 90 days.
Thursday AAPL, V
P/E 28 most likely is going to be a type 2, Q4 is really strong quarter usually for them
VISA P/E 36.6
Visa is down 11% from July ATH. Not likely to have an outstanding earnings but who knows.
Fear and greed is what fuels the algorithms that provide 87% of the market volume in 2022
Don’t overthink this stuff.