Normandy Exec Charged With ‘Manspreading’ – Claims He Was Framed (PRI)
The world is a wacky place, friends, and no stranger, perhaps, than in the financial sphere, where the disconnect between substance and reality can be immense.
Consider first, though, that there are two things that are regularly confused or otherwise conflated in the money realm, and they are:
1) The economy, and
2) The stock market.
No, no, Lorelei. The economy is a very large and cumbersome creature that is difficult to measure, equally challenging to predict and nearly impossible to manipulate for any meaningful stretch of time. It consists of literally every decision that people and businesses or other institutions make – whether to spend, on what to spend, whether to save, how to save, whether, how and where to invest, etc. The aggregate total of all these decisions is, in essence, the economy.
And of course, that aggregate sum of decisions will bear upon the earnings of companies that provide goods and services to said individuals, businesses and institutions.
So far, so good.
On the other hand, you have the stock market, where people come to purchase the earnings of those same companies in the hope that they’ll continue to expand and thereby offer a satisfactory return on investment.
And that’s where it gets complicated. Because the market has so many ways of valuing a company and its earnings that it’s almost futile to attempt anymore to predict stock prices based on earnings alone.
Some companies, for example, turn in stellar performances on the capital appreciation front, but have yet to turn even a nickel in profits.
Other firms produce reliable earnings and grow them at more or less predictable rates, yet see their equities shrink in value for no apparent reason.
And the underlying reason for the disparity has far more to do with the perceptions created by Wall Street and the corporate financial media than anything else.
Wall Street’s goal is to ‘sell the dream’. And the mainstream media’s goal is to titillate its viewers/readers/listeners in order to sell advertising.
And a made-in-heaven symbiotic relationship is thereby created, while also, at times, being completely devoid of substance.
Both cohorts (Wall St. and the media) share a common purpose, and that is: to excite you in order to make money. Is your welfare under consideration here? No, sir; the profits of the brokerages and the media conglomerates is. You’re merely a set of glands to be stimulated.
And that’s why one should never let the show business of the market deceive one into suspending disbelief.
Know it well: this is a complete show.
Believe anything else at your peril.
And it’s with that in mind that we turn now to ‘breaking news’ from one of the largest outfits on Wall Street, financial behemoth Goldman Sachs (NYSE:GS), who’ve just reported that calendar year 2018 is shaping up to be a blockbuster year for the U.S. economy, that the Fed will be forced to hike interest rates no less than four times over that period, and that the stock market will very likely tee off and see great gains for the next 12 to 18 months.
And that may or may not be true. But it does lead us directly to our trade of the week.
Two Steps Back and a Giant Leap Forward
Before we get there, however, a look back at two initiatives.
The first was launched on May 23rd in a letter called New Tech. New Mania. Old Bird. There, we asked you to sell five AAPL June 23rd 133 PUTs for $0.19 each and ten November 17th 115 PUTs for $0.72 each. In addition, we urged you to buy the AAPL May 26th 155 CALL for $0.75. Total credit on the ordeal was $7.40.
And whaddaya know, as of last Friday, all three options have expired dust worthless, giving us the full premium pocketed – a 100% return, and a hefty take, to boot: $740.
Next on the card is our October 3rd bet, from a letter called The Wages of SIN!
In that missive we recommended you buy the BF.B March 16th 55 CALL for $3.20 and sell the BF.B March 16th 55 PUT for $3.10. Total debit on the trade was $0.10.
And today? The maker of the popular Jack Daniels line of alcohol has moved in our favor. The stock is 10% higher and the CALL now trades for $5.10, while the PUT goes for $1.40. Sell the former and buy back the latter and you net $3.70 on a ten cent investment. That’s 3600% in seven weeks.
Our trade for the week is a play on the above mentioned Goldman forecast for 2018, in which strong economic growth is accompanied by four rate hikes.
The industry that has traditionally benefited from rising rates is the insurance business, where premiums collected on a monthly basis can be reinvested at ever higher rates. And we’re coupling an insurance firm with a seller of mutual funds for the trade, in an effort to take advantage of a more robust stock market environment and a potentially stronger retail investor commitment to it.
The company is Primerica Inc. (NYSE:PMI), once a wholly owned arm of Citigroup, but now its own main man. And this is the way the company’s earnings stack up for the last ten quarters –
We like Primerica’s earnings trajectory – and we believe they’ll do even better as rates rise and Main Street investors take hold of this last leg of the bull and ride it toward the deep freeze.
Take a look now at her chart –
Recent excitement centered around a strong earnings beat (in red), and although prospects for the year ahead remain strong, short time direction will likely be sideways to down. Two oversold RSI reads (in green) testify to that.
And it’s for that reason we’re structuring our trade with two prongs, one short term and one long. And it looks as follows –- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
Wall Street Elite recommends you consider a) buying the PRI December 15th 95 PUT for $1.10 and selling the PRI December 15th 100 CALL for $1.35, for a credit of $0.25, and b) buying the PRI June 15th 100 CALL for $7.30 and selling three (3) June 15th 85 PUTs for $2.40 each. Total debit on part b) is $0.10. Taken together, we earn a credit of $0.15.- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
With kind regards,
Hugh L. O’Haynew