Smoke, Fire & Mirrors (Tesla,HYG,DIA)

Smoke, Fire & Mirrors (Tesla,HYG,DIA)

The market is a perfect mirror of the mindset of the nation. (Tesla)




It’s not so complicated, really.


Consider: in the 1920’s a powerful liberal, even libertine trend prevailed in the personal sphere, an escapism, you could call it, and an exaggerated belief in debt financing and the constant growth required to repay it.


And lo and behold, the market at the time was characterized by an equally escapist blow-off top rally in 1928/1929, built on outlandish dreams of Gatsbean wealth and, of course, the exceedingly easy margin offered by the brokerage business of the day.  It was an era of anything-goes prosperity that fooled everyone into believing it would last forever.


Of course the whole thing ended badly, with millions jobless and the financial state of the entire planet thrown into ruin for a decade.


In a word, reality had the final say in the matter, and no matter how hard folks pined to divest themselves of what was right and true, in the end there was no escaping the bedrock that awaits every dreamy-eyed skydiver who insists on jumping without a chute.


Fast Forward a Century (Tesla)


In our case at this time, there’s also a widespread unwillingness to face reality – in all of its iterations.  And at the same time, there exists a perverse penchant to hand over the reins of responsibility and oversight for nearly every aspect of our lives to some well-intentioned ‘authority’, whom we imagine knows what’s best for us, from nutrition to neighborliness and from trade to war.


In fact, we’ve gotten so used to government in our lives that we’ve completely forgotten how to make decisions for ourselves, preferring to defer to the local lavatory engineer in the mayor’s office to instruct us on proper protocol for the commode.


And that’s not all.  Regarding the larger questions affecting our civil and national interest, we’ve permitted a media that’s in bed with the regime to dictate to us exactly what to think and how to behave, and all with an endgame of keeping us from ever questioning the authority of those for whom the system works best – the elite.


It’s insane.


And the market mirrors it.


There, where equities are bought and sold every day, there’s an equally widespread unwillingness to digest the most salient financial and economic realities of our time.  Take the endemic and growing unemployment that has afflicted a wide swath of our younger generation, to the point where the vast majority have no money whatsoever to spend, as against a corporate class that’s teeming with cash and doesn’t know where to put it.


Consider, too, how diminishing sales are cutting ever deeper into corporate earnings, yet the multiple on those earnings continues to expand, because that’s the only means available for Wall Street to justify and steer stock prices ever higher.

S&P 500 Earnings Growth Q2 2016

And who have we left to engineer the whole pitiful march toward a similar 1929 blow-off top?  Why, who else?  Our masterful, all-knowing and beneficent government.  They, after all, can be trusted.  Right?


Care of the ‘experts’ at the Federal Reserve, we have extraordinarily low interest rates, a vast increase in the money supply, fudged monthly economic data, a penchant for bailing out failing businesses and a heavy hand in the credit markets, all of which add up to a market that long ago lost its natural ‘price discovery’ mechanism.  What exists today is nothing less than price concealment.


But that won’t last long.  Financial realities can’t be papered over forever.  Eventually the whole mold-ridden underside breaks through and sullies what looked oh so pretty for much too long.


And so it will be, on that fine sunny day ahead of us, when the reality of what we’re up against becomes crystal clear for all to see, and the shackles of all the lies that bound us for so long are no longer agrip, that the market will respond in kind… and fall.


Like our spirits.


Not me, Jack! (Tesla)


It may sound unkind or unfair, but this, too, is reality: that one needn’t suffer a whit from the disillusion that awaits.


When the truth begins to bite, those who know it already won’t, in fact, feel any pain, and better still, will be able to maneuver adroitly and without emotion to capitalize best on the day’s events and trends.  That is to say, smart people who are unafraid to seek reality today, to know it in its ignominious devastating fullness, will be spared later.


And they alone will profit.


We invite you to join us on that journey and participate in the week’s best money making forays, regardless of the emotional tides and mood swings ravaging the rest of the world.


If you want to make money, know reality.


And today, reality consists of a manipulated market that’s on the rise and is incrementally gathering new believers.


Let’s ride it.


A New Trade and an Old (Tesla)


Before we get there, just a few words on a couple of trades that require your attention.


On May 10th, in a letter called Dow Jones Goes to War, we opened a four legged trade, three of which are already closed.  Total debit was $1.50.


What remains is the long DIA July 183 CALL that evaporates this Friday.  It’s now going for $0.75, and we say sell it.  Total take on the trade is net $1.09, including the additional short PUT we added to the trade on May 31st.


Not a home run.  But a win.


Next up was our High Yield effort of a week ago.  The letter was called Investment Basics: Fish Oil and Donuts, and there we urged you to purchase the HYG January 84 CALL for $2.01 and sell the HYG January 80 PUT for $2.20.  Total credit on the trade was $0.19.  Today the Call goes for $2.70 and the PUT for $1.50, and we say that’s good enough.


Shut her down!


Sell the CALL and buy back the PUT and you net $1.39 on zero outlay.  Call it 827% after adjusting for minimum commissions.


High Yield it Was! (Tesla)


Today’s trade is a play on the illusions we discussed above.  We’re trading what might end up the biggest bluff of all time.


Of course it’s Tesla (NASDAQ:TSLA), the four wheeled wonder-child of a musky fellow that appears also to be great kindling.


Here’s the chart –


With a break above her moving averages a day away, and MACD about to confirm the latest bullish action, TSLA won’t see 115 again for a long, long time.


So we’re selling PUTS there.


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With kind regards,


Hugh L. O’Haynew

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