Trading Diary: Cash still king as Wall Street corrects

Just when we were set to do some cautious nibbling on decently priced stocks, the bears roared back into action Tuesday morning. We continue on defense. Puts, anyone?

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Fire or no fire? (Cartoon by Branco, reproduced with permission. See below)*

WASHINGTON, March 21, 2017 – Wall Street is experiencing a nasty hit Tuesday morning as the implications of the Fed’s latest rate hike begin to sink in. Complicating matters further was FBI Director Comey’s dodgy performance on Capital Hill late last week, which seemed aimed at continuing the Deep State’s destabilization of the Trump Administration while stepping around key questions about Russian hacking and U.S. invasions of personal space in a maddening fashion.

Our initial impressions of Comey were reinforced by this performance, to the point where sober minds have to wonder: are all our law enforcement and intelligence agencies busy going rogue? Followup question: Are all these agencies, more or less, in the tank for socialism? Good questions and hard to get answers to. Even individuals you’d like to trust could actually be on the “enemy” side but running false flag operations so we’ll believe their stories until it’s too late.


Read also: Apple sees red. So do the Dow, S&P 500 and NASDAQ averages


President Trump’s big problem is that he’s not paranoid—people really are out to get him. Under Obama, the Federal government bureaucracy, which, save for the military, is and always has been (since Roosevelt) a massive pro-Democrat army, has seemingly evolved into an anti-American fifth column that’s implacably hostile to any Republican who manages to get past massive voter fraud and win the White House. (Bush II experienced the same thing.)


Conspiracy theories aside, this is, more or less, the perception outside the Beltway, something the dishonest media blow-dries don’t know about or don’t care about. But it’s this perception—that Washington is either evil, ignorant or both—that’s been slowly creeping in to damage some of the short term optimism in the market. The “news cycle” and investor psychology are likely more important than ever in 2017. Investments will have to be managed accordingly. And right now, investors are nervous and the natives are restless.

Trading Diary

In this uncertain climate, you can sense that the bulls want to get back in control but that the bears are in the driver’s seat right now. As a result, we’ve continued to behave rather timidly with our portfolios, taking profits where we can in stocks and investments we’re less confident in, while holding stable high-yielders and hedging a bit with short S&P 500 ETFs like SH and SDS.

In addition to financials, which are getting pounded again today, some resource stocks have taken a big hit, most notably our smaller portfolio’s holdings in Cliffs Resources (CLF), a Cleveland-based mining company that, last time I looked, is one of North America’s biggest, if not THE biggest, supplier of iron ore to the steel industry.

Cliffs is off about 75 cents per share as we write this, which doesn’t seem like a lot. But this is a stock that used to own coal (and has sold all its holding by now) and was badly damaged—almost fatally—by the Obama Administration’s War on Coal. Its price sank close to zero at one point. But the company never went bankrupt and now, considerably smaller, is back to its original business of mining iron ore and transforming a good bit of it into partially refined taconite pellets for sale to domestic and international steel mills.

Even so, the stock is still cheaply price, dollar-wise, meaning that 75 cent hit it’s taking right now is potentially an 8.25 percent loss on the day thus far, with the stock currently priced at $8.52 give or take.

When you buy a “cheap” stock like this, you have to buy quite a few shares to establish a decent position, so when these little guys get hammered, it really hurts. Fortunately, analysts who follow CLF think it’s going to do well this calendar year if steel keeps up its current pace.

Plus, the company is now back in the green again, and its forward price-earnings ration (PE) is ridiculously low for an industrial stock: 6.63 by consensus estimate. That’s now lower than the PEs of most banks and utility companies, making these shares a potential bargain. At least for now. So we’ll hold onto them.

On other portfolio fronts, our Allergan convertible preferred A shares (AGN/PRA, your symbol may vary), have been swooning rather nastily since their latest big dividend paid out. Short term, this makes the portfolio look pretty anemic, since this one is a big holding for us. But we’re keeping these puppies until they are redeemed in March 2018 at $1,000 per share. Right now, at $838 per share and sinking, they’re looking buyable again.

Our shares in Newmont Mining, primarily a gold and silver miner with some copper, are perking up again after taking a nasty hit during the recent massive bear raid on precious metals. So we continue to hold these as well, although we’re still in the red.

Finally, we took some defensive action in our small holding of newly IPO’d Snap, Inc. (SNAP), parent company of Snapchat. Bears have been dumping these shares by the boatload after amateur investors were suckered into buying them at high prices a day after the IPO went public. The stock got awfully close to its IPO price ($17) late last week as a result, dropping from highs of over $26 per share.

For reasons we’ve explained here before, while we selectively acquire IPO shares as part of our over all game plan, we can’t really flip them like many investors do for a quick, handsome, one-day profit (assuming they work out). We have to hold them for a full 30 days. So if a given IPO doesn’t work for us, or sells off hard, like SNAP, we can take a hit once we sell when our holding period is up.

In this case, we decided on Friday to buy some “insurance,” by buying “puts” against further price declines in the stock. To make a long story short, a put enables the holder to “put” (dump) the stock to another investor out there at a specified price, in this case, a price higher than the IPO price. It’s a good deal, something that you can accomplish in the options market.

Problem is, there’s a “premium” (price) to pay for this strategy. I.e., the option costs you money, so now you’ll have to deduct that from the profit you might make by “dumping” (“putting”) the stock on someone else for a price that’s higher than the current market.

On the other hand, if the stock you’re covering goes back up, that put you bought will gradually become more and more worthless until it expires. Yes, puts (like their equal and opposite pals, “calls”) to have a time value. Unlike stocks, they do “expire,” and when they do so, if you haven’t traded out of them, you lose what you paid to buy them.

That’s enough of this for now, as I used to offer an entire course on options, which I view for new investors as inherently dangerous. However, buying a put can also be somewhat like an insurance policy for a struggling stock, enabling you to get out of it with your $$$ more or less intact. The opposite strategy, selling a call against a stock you hold, can actually earn you extra income. We’ll be writing more on this topic later in the year.

Bottom line: We’ve effectively hedged at least a tiny profit in SNAP buy grabbing onto puts. Of course, Mr. Market has laughed at us ever since, and SNAP has now started going back up again for two straight days. Don’t miss the next thrilling episode. But in the meantime, hold onto some cash. Markets are looking nasty and uncertain, as they wonder what in the hell both the Fed and the Washington Establishment will be up to next. I’m wondering about the same thing, and I live here.

*Cartoon by Branco. Reproduced by arrangement and with permission of ComicallyIncorrect.

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