Riding the Market's Ups and Downs in Style

  • Volatility evaporates… but for how long?
  • Exploding a market myth: Is volatility such a bad thing?
  • How to make volatility your friend and collect $1,000 or more every month
  • Readers still write: Jim Rickards on the Iraqi dinar
  • Free the raisin!… Rummaging through a mixed bag of economic numbers… preaching to the choir about the Social Security “trust fund”… and more!

  “Big Days Dying off in Stocks With No 2% Move Since December,” says the Drudge-bait headline this morning at Bloomberg News.
That is, the S&P 500 hasn’t posted a gain or loss of 2% or more for 126 trading days — “the longest streak since one ending in February 2007,” we’re told. “Stasis is gripping U.S. equities as investors mark time awaiting the Federal Reserve’s first interest rate increase in nine years.”
We’ll point out two things this morning. First, if the implication is we’re overdue for a big move, Bloomberg missed the opportunity to point out February 2007 was the month when HSBC “wrote down” some of its losses on subprime mortgages. It was the first visible crack in the edifice of subprime debt, leading ultimately to the Panic of 2008. Just sayin’…
Second, we recall Bloomberg put out a story last July saying the S&P hadn’t notched a 1% or greater move in more than three months. That very day, the index closed down 1.2%.

Today might prove to be, umm, interesting…
  The “stasis” of which Bloomberg speaks is well reflected in the VIX — the market’s “fear gauge.” As spring turns to summer, the index sits near its lowest in almost a year.

The VIX , as you might know, is based on the action in S&P 500 index options. “Volatility has been down most of this spring,” says our income specialist Zach Scheidt.
That’s a good thing, right? You want the market to be nice ‘n’ mellow. Or so conventional wisdom says.
Certainly, it was drilled into Zach from an early age. “Throughout my entire formal education — completing my undergrad in business a semester early, going to night school to get my MBA in finance and passing all three CFA exams — one false lesson got drilled into my head, over and over: Volatility is bad, and volatile markets are dangerous for investors.
“Entire formulas… heck, entire courses…. are built on the assumption that stock price movement is a bad thing, and the more prices move, the more investors suffer. Academics don’t even try to prove this concept anymore… it’s just accepted as ‘fact.'”
  And it’s dead wrong, Zach asserts. “Two decades of experience in the markets has taught me the opposite. So today I want to throw cold water on this notion that volatility is bad.”
Heck, volatility could be good for an extra $1,000 in income every month. But we’re getting ahead of ourselves.
“Contrary to what the academics believe, not all volatility is bad,” Zach explains. “If I wrote to you next week and told you that one of my recommendations was up 50% over a week’s time, would you write me an email about how ‘risky’ this position was and how you were disappointed with the volatility?
“No way! You’d probably be tickled with your return and possibly sell half of your position to lock in profits. Maybe you’d even take your spouse out to dinner or book a round of golf with a buddy to celebrate.”
You can seize opportunity with downside volatility too. “When downside volatility hits quality stocks that pay healthy dividends,” says Zach, “we have an opportunity to step in and buy shares at cheap prices — and make a profit when those shares rebound.
   “I love volatile markets,” Zach says. “The income we can potentially produce in these environments is enormous.”
Indeed, it’s a key to something he calls his “perpetual income strategy — an income machine churning out streams of income, month after month, year after year.
“When I began managing money at a $130 million dollar hedge fund shop in Atlanta, I learned about a unique investment strategy that captures instant income payments tied directly to volatility in the stock market. We used this strategy time and time again to make money for our wealthy clients.
“But here’s the thing that most people don’t get…”
  “The strategy is actually safer than investing in ordinary stock shares,” Zach says — “which is why our fund was able to make money even in volatile markets (during the same periods when our competitors were taking on losses).
“My ‘perpetual income strategy’ is simple, and it allows us to collect income from speculative bets aggressive traders make. Essentially, when these traders place bets on how far a particular stock could move, they’re required to place a ‘deposit’ to secure their bets. Our strategy collects these ‘deposits’ in the form of instant cash payments in our accounts. That’s right, instant.
“The best part is when market volatility increases, these speculative traders are required to put down even higher deposits. So in volatile market environments, our instant income payments actually increase in value.”
  And volatility is set to emerge from its springtime slumber anytime now, says Zach.

“What will drive this spike in volatility? Well, there are several catalysts that could send volatility sharply higher.” It could be a sudden misstep by the Federal Reserve. It could be a sudden development in the Greek debt drama. It could be the Chinese stock market bubble bursting.
“Any one of these possibilities could send volatility through the roof,” Zach says. “As volatility spikes, we’ll have a window of opportunity to double the income payments we receive from my ‘perpetual income strategy.'”
Zach aims to deliver at least $1,000 a month in extra income applying this strategy. Last month alone, it could have generated $2,548.
Curious to learn more? Our publisher, Joe Schriefer, is one of the biggest evangelists for Zach’s perpetual income strategy. He’ll show you how people just like you are executing this strategy… and how you can get started. Click here for the scoop.
  For the moment, however, the market continues its mellow ways. The major indexes are little moved as we write, the S&P 500 at 2,123. The Nasdaq touched an intraday record on the open, but has since pulled back.
If it’s volatility you want, it’s in the currencies. The dollar is rallying big-time as traders await word from Europe on Greek debt talks. The dollar index is up 1%, at 95.3. That’s sent gold tumbling to $1,179.
Treasuries continue to sell off, the yield on a 10-year note back to 2.4%.
  The economic numbers of the day are a mixed bag: Manufacturing still looks anemic, with the “flash PMI” number for June clocking in well below expectations and durable goods orders down in May for the third time in four months.
But housing looks sharp once again. Sales of new homes rose 2.2% in May, well above expectations.
  The lure of the Iraqi dinar just won’t die.

As long ago as 2009, The 5 was getting email inquiries like this: “I have many friends that are buying the Iraqi dinar, speculating on the notes to be revalued in the very near future. Some of the banks in America now are buying and selling their currency. Do you have any information?”
There’s still no shortage of Internet come-ons: “Best price on Iraqi dinar!” Now comes a reader of Jim Rickards’ Strategic Intelligence with a similar inquiry.
“I have followed the Iraqi dinar situation closely,” Jim says in reply. “Sadly, it appears to be a scam aimed at returning U.S. veterans of the war there and at other Americans. A story has been concocted that the Iraqi dinar will be suddenly and radically revalued upward against the U.S. dollar. This would produce huge gains for holders of Iraqi the dinar.
“In fact, there is no evidence whatsoever to support this story. It’s not clear how Iraqi dinar holders would be able to convert their currency to U.S. dollars even if the revaluation did happen. Another variation of the story is that the IMF will declare the dinar a ‘reserve currency.’ This is another fiction. There is no basis for the dinar revaluation story, and everyday investors should avoid purchases of Iraqi dinar.”
  After 66 years, the Supreme Court has freed the raisin.
In 1949, the U.S. Department of Agriculture issued a “Marketing Order Regulating the Handling of Raisins Produced From Grapes Grown in California.” Under this order, the USDA essentially confiscated a portion of the Golden State’s annual raisin crop.
“The title to those raisins passes to an entity known as the Raisin Administrative Committee, which is allowed to use the raisins for its own purposes,” explains Damon Root at Reason. “Those purposes include giving the raisins away for free to school lunch programs or selling them for foreign export. If it sells them, it gets to use the proceeds to fund its own operations.”
Raisin growers Marvin and Laura Horne sued the feds. Yesterday, they won. The Supreme Court ruled 5-4 the scheme violates the Fifth Amendment’s Takings Clause. Justice Anthony Kennedy joined the conservative bloc in an opinion Root calls “a major victory for property rights and a welcome rebuke to government regulators who try to stretch their powers beyond the limits set by the Constitution.”
Don’t say we never share good news with you…
  “If we want to fix the financial foundation of Social Security,” reads the first of several emails we got on the topic, “eliminate the cap on payroll SS tax and raise the normal retirement age to 70. People of 70 today are in far better health on average than were those of 65 at the time SS was initiated.
“Eliminating the spousal benefit, as the professor suggested yesterday, would be pretty drastic after ‘assuring’ stay-at-home moms that they wouldn’t forfeit all hope of retirement benefit.”
  “You say Social Security will be bankrupt by 2033,” a reader writes.

[No, we don’t say it. That’s what Social Security’s actuaries tell us. But please, go on…]
“The actual truth (believe me) is that the payroll tax income for SS now (and for the last three years) has not been enough to cover all of the present SS checks. The 2033 fantasy is theorized on the existence of ‘the trust fund,’ which is what SS classifies as an ‘asset’ in that it is ‘receivable’ from Congress, because Congress has (from a theoretical accounting standpoint) ‘borrowed’ from SS that amount now accumulating toward $3 trillion.
“Before you perpetuate the ‘trust fund’ myth, get a copy of the trustees’ annual report and get the facts. You will see how SS can claim that it does have enough income to cover the checks by charging Congress interest on what Congress is ‘borrowing,’ thus giving SS ‘interest income’ (which also goes into the ‘trust fund,’ where it can be used to make it look as if there is income that, in fact, is not income from which any checks can be written), because Congress is $18 trillion in debt and will never be able to pay SS what it has borrowed and spent.”
The 5: Taking ourselves a bit too seriously, are we?
There’s a reason we put “trust fund” in quotation marks. You did notice that, didn’t you? As David Walker, the former U.S. comptroller general and protagonist of the Agora Financial documentary I.O.U.S.A. puts it, the Social Security trust fund “can’t be trusted, and isn’t funded.”
We’re well aware it’s already been cleaned out to pay the government’s day-to-day bills — bombers, food stamps, hookers for Secret Service agents, whatever.
As our fearless leader Addison Wiggin wrote in this space in 2011, “The Treasuries in the Social Security trust fund are ‘special-issue securities.’ The only party that can buy them is… the U.S. Treasury. If the U.S. Treasury bought them, it would then have to turn around and issue an equal amount of conventional Treasury paper, flooding the market and driving up interest rates.
“This is why the ‘trust fund’ exists merely as a piece of paper with a very large number on it, stashed in the bottom drawer of a file cabinet at the Bureau of the Public Debt in Parkersburg, West Virginia.”
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. In stark contrast to Social Security’s number-fudging, Canada’s professionally managed old-age insurance program has grown its assets an average 8% a year in the last 10 years.
That’s a period including the 2007-09 financial crisis, we hasten to point out. And your retirement fund can achieve the same kind of performance if you “piggyback” the Canada Pension Plan.
With three simple steps, you can start collecting monthly checks ranging between $400-4,700. Follow this link to begin.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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