Hey Subscriber,

Welcome to Dog Days of August--the month of lower trading volume, vacations, outsize moves up and down in stocks. We continue to be focused on TACTICAL moves--i.e., using 5% ish pullbacks to build positions SLOWLY.

August and September to me are always "CAPITAL PRESERVATION" opportunities and we are always on the lookout for non-sensical pullbacks in our favorite secular growth sectors and stocks.

While the Biden Infrastructure Plan now looks like a done deal (which WILL get us to buy key EV infrastructure plays--be ready!) we will continue to buy our Transformity Global Digital Platform Dominators FAAAGMS during the quick 5% ish panic sell-offs back to their 50-day moving averages (Facebook, Amazon, Apple, Adobe, GOOG, Microsoft, and Shopify).

But the new reality today is the "Delta variant" is changing the dynamics of the global recoveries . . . and that in turn is changing the Street's prevailing "triple peak macroeconomic thesis--that we (in Q3) will hit "peak EPS gains/peak monetary stimulus/peak fiscal stimulus" which needs to be updated as follows:

1) The 10X more infectious “Delta variant” is changing the dynamics of the pandemic and the contours of the global recovery. In our view, to “Reconnect the World” and achieve a full, global economic recovery, the spread of COVID will have to be better controlled and there is no controlling the 30% of Western nations for whom I have lovingly come to identify as "Covidiots". "Third jab" booster shots for a significant number of the "vaccine willing" are already recommended for the fully vaccinated.

Alas, like everything else in highly politicized and polarized Western democracies, anti-vaccination "Don't Tread on Me"/"My Body My Choice" hysteria (not only in the US but France/Germany/UK and other modern Western countries with meaningful numbers of right-wing hyper partisans/anti-elite/anti-science true believers) means that ANY hope of controlling a 10X more infectious Covid-19 strain is out the window and not possible by year-end 2021.

In short, see Florida's exponential infection/hospitalizations/death rates as ground zero of the Covidiocracy. Encouragingly, more and more governments and corporations are requiring vaccination and unfortunately, more and more vaccine-hesitant are seeing people in their personal circle of family and friends/co-workers get infected with 10X higher virus loads from the delta variant and get really really sick (and the 2% ish death rate is moving higher with delta strain).
Action-to-Take: IF we get a meaningful pull back on Moderna/Pfizer or BioNTech, we will buy them. Actually, I like Pfizer here on any pullback as the BioNTech partnership now has multiple vaccines in the work (and we will get long-term options on BioNTech as it is a virtual certainty that Pfizer will acquire them outright). mRNA technology has rapidly become what decoding the human genome was to biotech in the early 2000s and I deeply regret taking profits on our early 2021 Moderna options and not buying the underlying stock for the long haul.

2) With China going full lockdown to achieve zero Covid-19 infections (ahead of their Oct 12 CCP meetings) that means at the margin, oil prices will fall as Chinese demand (the largest importer of oil in the world + now largest buyer of Iranian oil as well) literally drys up with lockdowns. This USOI chart looks a full retrace to 200-day support given the Chinese moves and delta variant travel/dine-out hesitancy that is re-emerging and mounting.

Action to Take: HEDGE Energy MLPs with XOP Options IF XOP breaks $75

What's Up With the US Dollar & Silver?
Oil, silver, and gold prices all reversed as the US Dollar jumped in value relative to the Euro over the last few weeks? Why did that happen?
A) Precious metals go down in value when the US dollar is going up in value against the Euro (and vice versa).
B) This is happening because (as mentioned a few times in the last weeks) European pension funds (with their stock portfolio values up 50-60% in the last 14 months) have filled to capacity with stocks and not enough bonds--but they are NOT buying EU bonds at negative rates.
C) The "carry trade" where you buy US treasuries and borrow the funds for 100 basis points LOWER than your yield (and hedge dollar exposure) is very attractive to leveraged hedge funds right now.

IN order to buy US Treasuries, you have to have US Dollars--and that is what has put a bid under the US dollar against the Euro--the pensions are SELLING EUR to buy US Dollar.

Why were we getting such nice gains in our SLVO and USOI positions until July? This chart tells the whole story--we got the downslide in the dollar right in April--but the appreciation of the dollar forces some to sell silver (profit taking and deleveraging).

Action to Take: HOLD and let the SLV (the index SLVO is priced off of) come back in August and September and THEN we nibble at $24 or lower!

SLVO monthly dividends seasonally drop in the summer--hence the .05 dividend for August. BUT the bounce back in Fall and normally ramp until June/July. And remember the 30% plus dividends more than makeup for the drop in the underlying price.

Here is my long-time pal from WSJ/Barron's Simon Constable reporting on the summer swoon: “Our view is that silver is vulnerable to a wave of selling in August and into September,” Jeff Christian, managing partner of New York-based commodities consulting firm CPM Group tells Barron’s. “If you see $24 an ounce prices or lower, then buy it because the probability is that we’ll see $28 soon. And ultimately, it will move higher over the next several months.”

Prices of the white metal have been on a wild ride over the past year and a half. From March 19 through Aug. 7, 2020, the price shot up from $12.01 a troy ounce to more than $28. Since around early August last year, prices have moved sideways, bouncing between lows of about $22 and highs near $30.

Christian sees soft prices this month and next, partially caused by seasonal weakness from industrial buyers such as electronic manufacturers and jewelry makers. Typically, such businesses would take inventories and vacations during this period, he says.

That effectively means significantly lower demand. This year, the two sectors are expected to consume almost half a billion ounces of silver, according to CPM. That’s about half the projected supply for 2021 of one billion ounces.

Exhausted silver bulls are another problem. These buyers likely piled into the market early in the pandemic, watched the price rally, and are probably despondent now given the lack of a continued rally, Christian says.

Meanwhile, the stock market steadily moved higher. That performance divergence will likely prompt investors to liquidate at least some of their holdings, according to a recent research report from Swiss bank UBS. “Selling pressure on silver should come from investors trimming their ETF and futures positions,” the report states.

Another factor in the likely exit of some silver investors is the stable greenback. Silver often gets purchased as a hedge against possible U.S. dollar weakness. However, that decline failed to materialize. The trade-weighted U.S. dollar index against broad currencies was recently at a level of 113, up from 111 in early January, according to government data.

“Dollar strength undermined the rally,” says Ross Norman, CEO of U.K.-based metalsdaily.com and a precious metals industry veteran. However, temporary selling and price weakness doesn’t take away from a longer-term bullish trend for silver."
I agree.

All-Access Silver Plays: We are starting to use WEEKLY "credit spreads" selling/buying options positions on the SLV (thank you Eddie C.!)--and so far we are earning at 3-5% a WEEK in option premium as silver settles down to make a tradable bottom.

If you want to get in on that fun (as well as earning $1.25 every quarter on USAC and other income positions), come to join us in the All-Access Trading room.

We will update option selling and buying trades in the All-Access trading room this week as usual!

Enough for now--look for more updates in the Dog Days of summer!

Toby

PS" Don't Forget Rule #1 Transformity Investing in 2H 2021: BUY the pullbacks past the 50-day price moving averages--everyone ELSE does!

August Update: What the Heck is Going on With Silver??