SQQQ Hedge Update & The Great American Inflation Inflammation & Macro Transformation Is Here!
Hey Subscriber,
So last Friday I shared " I always sleep better over the weekend when we see a short-term rollover in QQQ with a hedge--and only our tech plays. ROM is right at technical support--and all the technical supports have rolled over.
NOT a panic--just insuring that they DON'T roll over by ME without a hedge :)"
Here is Friday Close . . .
BUY SQQQ May 7 2021 11 Call (Weekly) .30 cents or lower
That hedge tonight is worth .82 cents in the after-hours trading--so if you bought enough, your Ultra Growth portfolio should be stable--if you didn't--you obviously weren't worried so no whoop.
Also, our Ultra Growth portfolio is up about 30% including dividends this year so far--and we have 2X more of our hard-earned $$$ in our Ultra Income portfolio than Ultra Growth positions FOR A REASON.
PS--I am a professional worrier when it comes to other people's money, ok?
Action to Take: QQQ down a little more in the after-hours--let's hold the hedge and see where they go tomorrow.
Here is ROM tonight--broken 20-day support and flirting with 50-day support line. The next stop is the most important support at the 100-day price moving average which has been key support since May 2020.
Reality? ROM is close to being oversold but needs to hold the 100-day this week. If she breaks $75--secular growth stocks have a real problem.
But as my world-famous 3 meat Bolognese meat sauce is boiling down to a rich thick sauce which then goes into my REALLY world-famous Bolognese lasagna with bechamel sauce for dinner and guests this week, the ROM is not my worry or primary issue.
My concern is Janet Yellen making her gaffe about inflation and interest rates today. I've done macro and microeconomic research and analysis for a long time--and 15 years on live TV. You know what a gaffe is right? 25 years in DC taught me that a "gaffe" is when a politician or important person accidentally tells the truth.
Yellen in an interview quietly shared that "it may be necessary for the near future to raise interest rates somewhat to tamp down incipient inflation."
For those of you non-economic or English majors, the term incipient means "in an initial stage; beginning to happen or develop." Now the only lesson you really need to know about this gaffe is: 1) she got a WTF earful from the current Chairman of the Fed about 90 seconds after her statement and she "retracted" her gaffe/statement an hour later and 2) her FIRST statement was her telling her professional truth and not her political narrative.
This weekend another truth-teller was Warren Buffet who has a conglomeration of 260+ companies from home building to paint to auto and aircraft parts and every kind of insurance product and energy provider there is in America.
And he quietly shared MORE inflation truth (he's 94--Munger is 98!!) that "Oh yea--we have big inflation EVERYWHERE in our supply chains from See's Candy to home building to aerospace parts and chemicals/paint."
Now of course the Fed interest rate narrative is "We are not even thinking of thinking about raising our short term rates targets till late 2022 at the earliest or until we get to full pre-pandemic employment" and "we do expect a patch of inflation to hit the 2021 economy with all the stimulus injected into the economy and savings rate explosion at the household and corporate levels.
But that price inflation will be TRANSITORY and peak at 3% and fall back to historical levels as the economy reopens and supply chains are back to normal."
Well, friends--Janet Yellen called bullshit on "transitory inflation", and now, after getting many additional reads from earnings season, we do too.
The reason is simple. From a macroeconomic perspective (which is what we do for a living BEFORE we start looking for the most transformational sectors and companies in the world to invest in), what we are now seeing is THE most powerful and unusual set of monetary and intermediate price and labor inflation and supply chain disruptions since WW II (despite the rumors I was NOT in WWII--that was my Dad Capt. Stanley Black Smith US Navy Japan Theatre PT-108!).
Key Point: WE now have unambiguous data that we have literally EVERY kind of wealth-destroying/interest rate raising/commodity and real estate inflation happening in America all at the same time!
More important: higher risk-free interest rates are kryptonite to 30-50X revenue-valued companies in the QQQ.
As I shared with our All-Access members today in our online Discord trading room:
"Chairman Yellen's gaffe about "insipient inflation" might be the understatement of all time. What we have here is a mind-boggling case of "Inflation Inflammation"-- I know--I can't help myself."
But for the first time since perhaps WWII, we now have all SIX types of inflationary pressures all occurring at the same time: again--we simultaneously have every heinous form of price and asset inflation bubbles known to the modern world.
We have:
1) Demand-pull inflation which arises when the aggregate demand increases at a faster rate than aggregate supply--can you say the "unlocking" of a locked-down $20 trillion economy that is about 70% consumer-driven that is currently without enough people/staff or aggregate supplies to possibly meet demand?
2) Cost-Push Inflation is a result of an increase in the price of inputs due to the shortage of production (read semiconductors the new oil of the digital economy), leading to a decrease in the supply of outputs.
3) We have intensive wage inflation driven by the new $15 minimum wages, unemployment benefits that are more lucrative than working, and a material amount of skilled and professional labor dropping out of the labor market altogether.
As an anecdotal side note, in our wide bi-coastal circle of family and friends--mostly 60 and over--I'd say 25% have decided after a year of contemplating their navel have come to the "F$%%K It--I'm done--life is too short be a high paid cog in Corporate America! Between my 40I-k, my Transformity enhanced brokerage account value, and my $300,000 house on the West/East coast or resort community that I can sell for $1.5/$2.5/$3.5 million cash money, why should I put up with being on the road 10 days a month or teaching Gen-Z's how to do my job for $200k less--I'm out!"
Anecdotally, those folks are coming to our Wealth Management practice and saying "OK Tobe--here's the dough--make me $200k in annual income and I don't want more than 20% in stocks, ok?"
PS: We are working hard on adding new space on our Wealth Management platform, OK?
4) Of course we asset price inflation where every asset has gone way up in value from home prices to crypto with $5 trillion on cash money injected into our $20 trillion US economy and $5 grand of "stimmy" money and tax refunds.
5) Then of course you add the still meaningful YOLO marginal casino cash with 20 million NEW stock brokerage accounts chasing too few public or private or crypto or NTF things with "diamond hands."
6) And standing on deck, we have $2-3 trillion more of "infrastructure investments" aka fiscal stimulus from the Federal government on deck with the term "infrastructure" being a euphemism for providing a much deeper and meaningful economic safety net.
And look I get it: nearly 66% of American households are not thriving in the 21st century. We have 21% of American families living at or under their regional poverty line (that data BEFORE the pandemic) and the 39% of lower-middle-class working poor families code-named "ALICE" households ("Asset-Light/Income Constrained ie hourly wages/Employed) BEFORE the pandemic who can't make 8 of the 10 minimal payments for a lower-middle-class lifestyle.
I am an economist and stock picker--I'm just telling you the actual economic facts in America OK--don't go postal on me!
At the same time, 10,000 Americans turn 65 or 70 every day and qualify for Medicare and Social Security. The problem there is the average Medicare couple who earned on average $74k per year in their working life paid in ONLY $78,000 in Medicare premiums. The real problem is actuarily they will be reimbursed $224,000 on average for healthcare reimbursement/Medicare Advantage premiums.
You get the point. To pay the average person's Medicare bill we actually have to BORROW some of the money--same with Social Security payments.
We in the investor class top 20% pay Medicare tax on ALL of the income our salaries/business/investment income--but it is still not enough. There is no Social Security or Medicare "lockbox" LOL... we borrowed the SS/Medicare surpluses in the '60s, '70s '80s-'90s to pay for all sorts of stuff.
So--our national debt as of July 20, 2020-- debt held by the public was $20.57 trillion, and intragovernmental holdings were $5.94 trillion, for a total of $26.51 trillion. On July 20, 2021, our national debt in a $20 trillion economy will be well over $30 trillion. Now just like people who make $100,000 a year can easily afford a $300,000 mortgage with 30-year amortization and 2.5% interest rates, America is not at any financial risk...now.
But--the real issue about sustained 3% inflation is the mother of all inflation fears aka the bond market will HAVE to raise interest rates to account for higher rates of inflation. Then the mother of all infrastructure spending will require the Fed to monetize (i.e., buy US bonds by creating more dollars via a keyboard click) and ALL OF THAT means that the earnings/cash flow of secular growth equities will be discounted-to-present value at MUCH higher discount today than 6 months ago.
The biggest macro and microeconomic transformation in North America is our new Macro Inflation economy--hence my term "inflation inflammation."
Action to Take: We are PERFECTLY positioned with our limited Ultra Growth positions at 30% (hedged) and Ultra Income 15% (or more) dividends.
We get 10% corrections of the overall market every six months--the 30x60-90X revenue stocks have been clocked with 40-60% declines.
But the tea leaves and evidence I am seeing says--inflation-sensitive Ultra Income commodity plays and UNLOCKING growth like FB, Google, Amazon and re-opening plays like Sonos and CNHI etc. work.
We will stay hedged until the market overshoots downside as it always does.
But like I tell managed account folks--"Hold your Ultra Income securities and those insane dividends tight. We are adding additional commodity plays with pricing power--they are the new growth stocks!"
Further updates to come--but this IS a giant macroeconomic transformation--and IF the Fed is boxed in--and inflation jumps the shark--inflation beneficiary stock will soar and ZERO profit secular growth will sink like a rock in the ocean.
Peace out!