Saturday, December 23, 2017


It would be beyond cliché for the Authors to quote the opening line from Charles Dickens’ classic tale of the French Revolution, “Tale of Two Cities. But what the heck. English composition classes are ancient history. 

It was the best of times,
it was the worst of times,

it was the age of wisdom,
it was the age of foolishness,
it was the epoch of belief,
it was the epoch of incredulity,
it was the season of Light,
it was the season of Darkness,
it was the spring of hope…

But 2017, like most years, contained some of the best and lots less of the worst than what we have seen in the last century and in the early years of this century. So is the world getting to be a better place? Is it just any worse than it was? Is it worthwhile to even ask the question?

A Facebook friend and a guy I have known many years posted his belief that despite his natural optimism, he was feeling very anxious about the future. He’s not the only one. A poll that the Author Rob found reported that only six percent of Americans are positive about the future. Another friend once told me that he thought that Americans were very unhappy people. Gloom and doom, fire and brimstone, the coming dystopia are very common American worldviews. And it is very easy to become negative. The country faces challenges at home and challenges abroad. The nation is often oblivious to endemic problems at home and the more rational views of other nations in the world. Our political system is toxic and practically dysfunctional. So it looks like we are peddling more of the same bad news.  

Nope. We have plenty of good news. Some of it really good news. Much of it comes from other countries, some of it is world wide, but there is no shortage of good news in this country. John Mauldin writes a newsletter called “Thoughts from the Frontline.” Mauldin is often considered a “perma bear.” But Mauldin cites to an article on the website Future Crush. The title of the web article is “99 Reasons that 2017 was a Good Year.”  Let’s look at a few:


Cancer deaths have dropped by 25% in the United States since 1991, saving more than 2 million lives. Breast cancer deaths have fallen by 39%, saving the lives of 322,600 women. Time

In October, new research from the Center for Disease Control revealed that between 2000 and 2016, the measles vaccine saved 20.4 million lives.  (Anti-vaxxers read this and wise up. You are endangering your kids and other people.)


China carried out its largest ever crackdown on pollution, reprimanding, fining or jailing officials in 80,000 factories, 40% of the country’s total. NPR

Sweden committed to phasing out all carbon emissions by 2045, and the country’s largest pension fund divested from six companies that violate the Paris Agreement, including Exxon, Gazprom and TransCanada. CleanTechnica

Deutsche Bank, one of the coal industry’s biggest financiers, announced it would stop financing all new coal projects. Ouch.

In the United Kingdom, the birthplace of the industrial revolution, carbon emissions fell to the lowest levels since 1894, and on the 21st of April the country did not burn coal for the first time in 140 years. Independent UK

Solar energy is now responsible for one in every 50 new jobs created in the United States, and the clean energy sector is growing at 12 times the rate of the rest of the economy. CNBC

General Motors believes “the future is all-electricVolkswagen announced it’s investing 70 billion euros and “putting its full force behind a shift into electric cars” and Volvo said that starting in 2019 it will only make fully electric or hybrid cars “the end of the combustion engine-powered car.” Atlantic


New data showed that young people are officially less racist than old people. The worldwide trend is towards less discrimination on the grounds of skin tone or caste. Quartz

The immigrant population of the US (people born in another country) has now reached 43.7 million people, one out of every eight residents, the highest proportion in 106 years. CIS

Global deaths from terrorism dropped by 22% from their peak in 2014, thanks to significant declines in four of the five countries most impacted: Syria, Pakistan, Afghanistan and Nigeria. ReliefWeb


Snow leopards have been on the endangered list since 1972. In 2017, they were taken off, as the wild population has now increased to more than 10,000 animals. BBC

Taiwan became the first Asian country to ban the eating of cats and dogs, with new laws imposing fines for consumption and jail time for killing and cruelty. National Geographic

Gucci announced it would go fur-free in 2018 and auction off all remaining fur items. It follows in the footsteps of Armani, which went fur free in 2016. Harper’s Bazaar

There is a lot of good news here, and there is much more to be found on Future Crunch. 


It would it be impossible to close out 2017 without a look at the historically low level of market volatility and the insane activity of the cryptcurrency Bitcoin. The VIX is an indicator of market volatility based upon market expectations for the next 30 days. For much of 2017, the VIX has been in a very abnormally low range. It has spent much of the time from March to today in the level close to ten, even falling below ten. The VIX is also called the “fear index,” as it roughly reflects the short-term investor sentiment regarding the possible swings in stock prices. VIX at this level indicates a generally positive and stable near-term market outlook, despite the large grind to the upside and some international instability. But for option traders such as the Authors, it makes it difficult to find the large movements in price to generate good returns. Other strategies can work in these slow trending markets suc

Finally Bitcoin. The Authors have dipped their toes into Bitcoin with shares of GBTC, a Bitcoin Unit Investment Trust.  Swings have been large, and it is still difficult to get good valuations of the trust premium (this premium is the difference between the underlying value of the trust’s Bitcoin holdings and the amount which investors are paying for shares of the trust). Next year will bring ETFs that will trade Bitcoin long and short. The Author Rob has little understanding of Bitcoin. But in his opinion, it is not an alternative currency. It is a commodity that promoters wish to become an alternative currency. The market is incredibly opaque and illiquid. But perhaps when it is widely traded in the markets, it will be discounted for it really is. Not much of anything. 


Markets slow at the end of the year. Western countries, especially historically Christian countries, slow for Christmas and New Years. And these holidays stretch further back into our pagan histories. These short days have always been a time of indoor festivity and “prayers” to the sun to return in the spring. So it is worth stepping back a bit and sitting before the figurative Yule Log. Or the digital Yule Log, if you wish.

The New Year is a time for resolutions and fresh starts. For fitness centers, diet companies and the maker of Chantix, this is their Black New Years Day. So let’s kick back and refresh over the holidays and kick-start 2018 with some nice gains and great times with friends (make sure to make some new ones this year) and family. Adopt a shelter pet and donate to animal welfare or your favorite charity. And hope like the Author for a trip to the Super Bowl for the Minnesota Vikings.


Saturday, December 16, 2017


The December 2017 Investment Newsletterr addressed some reasons for equities ongoing increases. It also addressed Bitcoin, the bubble de jour in these halcyon days for market “froth.” 

Bitcoin, as we surely know, has hit the stratosphere. It is currently pegged at $17,600, and was trading at $17,270 at 16:00 hours today, Saturday, December 16, 2017. This site tracks bitcoin in real time.

Based upon the driving human emotions of economics, fear and greed, and observations of legion financial bubbles, a few will cleanup and most will get fleeced.  But that’s business as wise guys know it.  Sure, some will lose houses, life savings, pension-regrettable, but avoidable. . But the bigger world will be the earth’s atmosphere and depleting fossil fuels. Sound’s crazy, right? Here’s how.


Remember that Bitcoin is a crypto currency with no physical. It “exists” on a huge peer-to-peer network.  Many Bitcoin Investors  (Author’s Disclosure: The Author’s own the equivalent of .2 Bitcoins in GBTC, a Bitcoin Investment Trust) “own” the Bitcoin. There are other ways to invest. The CBOE has begun futures trading in Bitcoins and there are institutions that wish to create Exchange Traded Funds (ETF) that will hold Bitcoin. There may also be RTS that short Bitcoins.  But if you have enough computing power, you can use computer to “mine it”.

But as we know, Bitcoin exists only as electrons, or as executable computer code. To mine it, you must have massive amounts of computing power to solve complex mathematical problems (“hashing algorithm” called SHA-256) with “brute force” computing power. These calculations require so much computing power that your systems must use profligate amounts of electricity and produce tremendous amounts of heat.  If your system crunches the hash algorithm more quickly, you earn some bitcoins. But we are not talking megawatts. The amount of electricity to mine Bitcoin is currently equivalent to the usage of Serbia. I exceeds that of the aggregate electic power use of many third world countries. By 2019, Bitcoin mining will use as much electricity as the US. And by November 2020, it will use the same amount as is currently used by the entire world.

Of course this usage curve is unsustainable. But where will it stop and when Perhaps the oldest of human emotions, fear and greed will crash the entire Bitcoin universe.


Wednesday, December 6, 2017



It is likely that 2017 will see the major market indices close at record high levels. It is possible, even likely, that there will be a pullback in the short term. The outlook for 2018 is not guaranteed, but signs indicate the first part of the year will continue to provide gains or at least avoid large, sustained pullbacks. Several factors point in that direction.

First, monetary policy has shunted everyone into equities, or at least away from cash. Interest rates have been extremely low, causing money to cascade into equities or other oddities.  Take a look at information contained in a recent John Mauldin newsletter, “Thoughts from the Frontline.”    Here is where some money is going:

• A painting (which may be fake) sold for $450 million.
• Bitcoin (which may be worthless) soared nearly 700% from $952 to ~$8000. (Now up to over $11,000.) More on this later…
• US corporations sold a record $1.75 trillion in bonds.
• •Argentina, a serial defaulter, sold 100-year bonds in an oversubscribed offer.
• Illinois, hopelessly insolvent, sold 3.75% bonds to bondholders fighting for allocations.
• The market cap of the FANGs increased by more than $1 trillion.
• Money-losing Tesla Inc. sold 5% bonds with no covenants as it burned $4+ billion in cash and produced very few cars.  (Hmmm… when did we last hear the term "burn rate"? 2000, I recall.)

Two historical and seasonal market factors may also come into play. The first is the “Santa Claus Rally” and the second the “January Effect.” The Santa Claus rally happens in the last week of December and the first two days of January. This effect is attributed to workers investing their Christmas Bonuses (the Author Rob asks “what are these.?” He has not gotten a Christmas Bonus since the early 1990s.), purchasing based upon lower prices anticipated by the January effect, and the tiny gasps of “peace on earth and goodwill toward men” that are still in utterance.

The “January Effect” is believed to the result of investors selling off losing investments to harvest the tax losses (lower prices for stocks) and again, investment of Christmas bonuses.


Remember the kids’ game, “Button, Button, who’s got the Button?” Several players would put their hands out and one kid would secretly drop the button into another’s hand. Then the kids would try to guess who had the button. (This is not to be confused with the game of “Hot Potato,” which may prove to provide a much better analogy.) Only one kid can have the button, and the player that makes the right guess wins the game.


A Bitcoin is a cyber-currency that has no physical existence. It is held on peer-to-peer networks and not on a single server. Bitcoin is accounted for on the “block chain,” a distributed database of the transactions. Bitcoin “miners” are paid in Bitcoins for solving extremely complex problems that protect the block chain. When Bitcoin was released, a PC had enough processing power to mine Bitcoins. Now it requires a huge server farm in a remote part of the world where electricity is very cheap.

Bitcoin is accepted by numerous parties. It is gaining in acceptance across the world, but is by no means broadly accepted. It is banned in many countries, especially in countries in economic turmoil such as Venezuela.

There are also concerns about Bitcoin because of its use in criminal and terrorist activity.

And we should also note that there are several other cryptocurrencies trying to compete with Bitcoin. And if you really, really wanted too, you could launch your own cryptocurrency.


Bitcoin is currently worth $11,056. (12.3 at 6:00pm ET) It is extremely volatile. It will soon be trading as a commodity in the Futures market. The US Commodity Futures Trading Commission (CFTC) confirmed Friday that CME Group and CBOE had met the requirements for regulated trading, while Cantor Exchange would also be able to debut Bitcoin binary options. 

Bitcoins have not yet been approved for major American markets and Bitcoin ownership is not just one mouse click away.  But large financial institutions are poised to launch Bitcoin exchanged traded funds. This is when to get the button.  A we know, exchange traded funds (ETFs) or sometimes known as exchange traded products (EFPs) are a common investment product. There are ETPs for market indices, market sectors and foreign markets. Currently, there are Bitcoin ETPs awaiting SEC approval.  Proshares  and  REX  
Both of these funds will have a product that is short Bitcoin exposure and one that is long Bitcoin exposure.

Some investors are betting it all on Bitcoin. Early adopting investors are dabbling in it and some got on the train very early. The Authors have not invested in Bitcoin yet, but believe the time to move is as soon as the ETPs are issued. These products will be launched with much fanfare and money will flow in at a fast and greatly accelerating rate.

At this point, the “Greater Fool” effect will be in full vigor. The price behavior of Bitcoin will resemble that of stocks in 2000, real estate in 2008 and perhaps even tulip bulbs in 17th century Holland. Keep your stop loss orders tight and hold on for the ride. The Authors’ need to ride another wave of other peoples’ insanity.


Saturday, November 25, 2017


There are not many “advantages” to getting old. Experience, hopefully. Wisdom, possibly. Occasional big drops in one’s stock portfolio, definitely.

As I said in the November 2017 Desert of the Real Economics Investment Newsletter, not even a lone trapper in Alaska could not have heard the news that American stock markets are at record highs, and pushing again through prior record highs. And what comes with record highs in the value of houses, tulip bulbs, gladiola corms or stocks? Record busts. The Author Rob has seen a few. The October 1987 Market Crash, the 2000 dotcom Bubble, and the Housing Collapse of 2008 (which was almost an economic collapse).

Could the next market crash be lurking afore? Could there be a 1-2 punch? Let’s take a look at two graphs. 


The first chart provides the level of student debt in the US. From 2006 to 2016 it increased from 200 billion a little over a trillion. Some analysts warn of an impending repayment crisis. Student debt is currently the second highest type of debt we have in the country, behind only mortgage debt, and greater than either credit card debt or auto loans. (1)

Nationwide, the average student loan debt is $4, 920. However, averages rarely tell the whole story. About nine million student borrowers have less than the average amount. But 12.4 million student borrowers have debt of an amount between $10,000 and $25,000. More than one million students have debt between $100,000 and $150.000.

“The rate of borrowers who are in default or more than 90 days past due is approaching 40%. However, the average student loan balance for students in default is only $16,381 according to a recent report by Demos, virtually identical to the $15,654 balance for people paying on their student loans.”(2)

Student loan debt is generally not dischargeable in bankruptcy. However, the debt is not collateralized (Loan sharks collateralize their borrowers, however) and the repo man cannot come out and haul in the debtor. The wages or property of the borrowers can be garnished, but most of them have little to no property. Wage garnishments can get repayment, but long periods of time are required for wage garnishment to pay off a debt.  And because many debtors change jobs frequently, there are substantial delays in transferring garnishment orders to their new employers.


Nineteen states can revoke a borrower’s professional license if they are in default on student loans. Three cesspools, Iowa, South Dakota, and Kentucky, can even revoke a borrower’s driver’s license. Remember, these are loans by the federal government, not the respective states. There are situations where licensed student loan borrowers refuse payment when they could legitimately pay. But in these cases, judgments against the debtor and wage garnishments would obtain payment. But in cases where the professional, such as a nurse, lawyer, firefighter will lose their ability to work (and repay) because their license is revoked, these laws reach absurd results and can trigger complete financial collapse for a person.


The Author Rob remembers the run-up and fall-down. The Internet had hit critical user mass, consumers gained more bandwidth, and venture capitalists and young entrepreneurs were monetizing anything that they could. Startups were everywhere and established technology firms saw their stocks surge.  Money came in by the containership. The NASDAQ reached 5048 on March 10, 2000(5). Panic selling set in and we know the rest of the story.

As the second chart demonstrates, At the height of the bubble, the stock market capitalization was 143% of GDP. Stock market valuation is currently at 133% of GDP. The historical percentage of market capitalization is 75%.

It is always risky to draw upon historical antecedent. But one historical fact we know is that markets fall much more quickly than they rise. And we know some tried and true market lessons”
1.     No one knows the absolute high and low. So we rely on herd immunity to save us from being “too” wrong.
2.     When the music is playing, we all have to dance. We must also make sure there is a chair nearby when the music stops.

Negative exogenous events do cause drops in markets. A nuclear strike by or against the DPRK would roil markets around the world. But the effect may be short lived if the DPRK fell, was occupied by Western and East Asian powers, and was stabilized and put on the path to democracy and engagement.

A bigger threat to markets is the extremely troubling actions and statements by Saudi Arabia and Israel directed at Iran. The level of bellicosity is ramping up and a war against Iran would send oil prices soaring as the Straits of Hormuz would be blocked and oil production equipment would be decimated.

In situations like this the US must exert leadership, not feckless self-aggrandizing twitter feeds. This administration sees diplomacy as a low priority and also seeks to abnegate the US leadership role in world affairs. In fact, it was recently reported that Secretary of State Rex Tillerson is firing senior career diplomats or forcing them to resign (5). The Author Rob is concerned that the risks in the Persian Gulf will require skilled and nuanced leadership from Washington, A skill that this administration has neither demonstrated or shown any interest in doing.




(3)   “When the S**t Hits the Fan,” by the LA Punk Rock Band The Circle Jerks. 



Sunday, November 12, 2017



Not even a lone trapper in the Alaskan wilderness could have missed the fact that markets are at record highs, after pushing through numerous previous records. The markets closed Friday (11.10.17), after a small pullback at 23,422 for the Dow, 2582 for the S & P, and the NASDAQ at 6,751.


Higher closes are possible, perhaps likely. But a pullback is also inevitable. Whether the pullback comes in stages, or is a massive correction, is not completely predictable.  But a factor relevant to the run up, and likely the pull back, is record low volatility. 


VIX is not the Nick Name for the Fourth Reindeer


The Chicago Board Options Exchange (CBOE) VIX VIXis a measure of the expected volatility of the S & P 500 for the next 30 days.  It measures implied volatility, or what the market predicts.[1] It is sometimes referred to as the “Fear” index. It reflects investor sentiment. It formerly has predicted decreases in the S & P.


The VIX has remained generally low over the last few months. Historically, a VIX value of ten is very low. But recently, the VIX has spent much of its time below ten, sometimes falling as low as eight.


The VIX has seen a spike or two recently. A recent spike happened on November 9th, likely due to concerns that the republican tax plan would be delayed.  One can expect a volcano if it appears that the tax bill will not be passed, or only minimal parts of that proposal are passed. *


Where there is Momentum, There is Money. Where There is Volatility, There are Ways to Make Money


When markets move, either way, traders make money.[2] When markets reach stratospheric heights based upon discounted events, a substantial pullback is likely based upon the occurrence, or nonoccurence, of such event. So news of the collapse of the tax plan could send markets reeling. Investor sentiment of the possible failure of such tax plan may be presaged in the VIX.


Commentators have also noted that because the VIX does not include world markets, it is limited in its ability to gauge investor sentiment.  Others think that the VIX is being heavily shorted, effectively keeping the index low.


Get out Your Old Financial Economics Textbooks


Finally,  some believe that Fed monetary policy is uber-transparent, allowing market participants “real time” information about monetary policy and permitting market participants to anticipate and react accordinglyThis essentially creates a feedback loop where the market and the Fed match move to move. Market events are ostensibly discounted and the Fed is extremely accommodating. 


Investopedia Investor Anxiety Index (IAI)


The IAI is a broader, although less technically validated, index. It is based upon the sentiment of Investopedia readers worldwide. It captures three data points, macroeconomics, investor, and debit and credit sentiment. A reading of 100 on the index is considered neutral. The index currently stands at 101.9, very close to neutral.


Historically, October and November are the worst months for the markets. We are nearly one-half way through November, but those historical markers may not mean too much in a market like this. 




* Although this is not generally a political blog, tax modifications, euphemistically called "tax reform," are merely grand plans for the operation of government, as artfully described by the late political scientist Harold Laswell, as "Politics: Who gets what, when, and how." This tax bill is a massive tax cut for wealthy business owners that own pass-through entities such as LLCs and LLPs. Lowering the corporate from 30% to 20% sounds meaningful, and may have some salutary effect. But since the effective US corporate rate is 18.8%, this piece of the bill is a canard. It provides modest tax relief to many middle income tax payers, and raises taxes for others. But the bill also zeroes out popular benefits for politically "weak" constituencies. In the Author Rob's personal view, he hopes the bill fails. The market will tank and he will clean up selling short positions. And a great injustice will be avoided.

[1] Implied volatility is also a relevant value for options. Implied volatility will aid an options trader in determining whether the option is more likely to fluctuate in price than other options. Remember, however, volatility is not a directional indicator. It only predicts price movement.
[2] Actually, there are ways for traders to make money in flat markets.  But that is a topic for another day.

Sunday, October 8, 2017



This newsletter for October 2017 will take a look at common Call and Put Strategies that a stock investor may employ in his or her portfolio.


Investors buy or sell options because of their beliefs about the future direction of stock prices.  (There are other strategies that seek to earn money from the non-movement of the underlying stock, but that is a topic for another month. The matrix below correlates future belief about stock prices with some common option strategies.


If an Investor owns ICBM stock and:

1. Investor thinks Stock may rise somewhat or
maintain its current price: Sell Call.
This Strategy is called selling a “Covered Call.” It is a covered call because the option investor owns the underlying stock. If the stock behaves as the investor believes, the investor will receive a premium for selling the Call and will pocket the money from selling the premium. 

2. Investor is concerned Stock will fall: Buy Put.

This Strategy is called buying a Protective Put. Owning the Put will give them the right to exercise the option and sell the stock at the Put Strike Price. Also, the value of the Put will rise so the Investor may close out the position and make money on the position.


Numbers 1 and 2 are commonly used. The analysis below will expand upon these strategies and the assumptions that underlie them.

Selling a Covered Call. This is an income generating strategy that a stockholder might use if they believe the stock price will remain steady or fall a small amount. The stockholder must also be ready to sell their shares if the stock rises or buy back the Call at a higher price. Jane owned 100 shares of ICBM. She felt that ICBM stock might fall or stay about the same. She did not think that the stock would rise, but if it did, she was willing to sell her ICBM stock if she was exercised. She had bought it at $40 and it was currently selling at $52. She sells a Covered Call at $55 and gets a $100 premium. Jane read that selling Covered Calls was a way to generate a little more money from a stock that she would be willing to sell anyway.

If Jane is right about ICBM falling in price or staying the same, she will keep her stock and the $100 Call premium. If she is wrong and ICBM goes up to $55 or beyond, she will have to buy back the Call at a higher price (lose her premium) or  have the Cal exercised and lose the stock. She will make $15 per share from the sale of the stock and keep the $1 premium. (55 Call Strike Price - $40 basis on stock = $15 gain on ICBM share).

The downside for Jane is that if ICBM shoots up to $70, she will miss out on the price increase beyond $55, the Strike Price of the ICBM call. In summary, the assumptions behind a Covered Call sale are:

1. The belief that the Stock will fall somewhat or stay the same. (If you think it will fall a lot, you should sell it!).
2. A willingness to sell the stock at the Strike Price of the Call or buy back the Call at a higher price than which you sold it.

Buying a Protective Put
. This is a common protective strategy to protect a stockholder from fall in the stock price. If Jane holds ICBM and is concerned that it may fall, she has two choices. She can sell the stock outright right now or buy a Put. Jane still likes ICBM’s prospects for the long term. To protect herself from a short-term price declines, she decides to buy a Protective Put. ICBM is currently trading at $52 and Jane buys a Put with a Strike Price of $50. If ICBM falls to $50 or below, Jane can exercise her Put and sell ICBM for $50. She can also sell the Put at a profit.


A popular strategy in a falling market is to sell stocks and indexes short. Short selling is a little complex and carries some measure of risk. Another strategy is to buy a Put on the stock that you believe will fall in price.  You do not need to own the stock. It puts less capital at risk than short selling. And it also give the investor leverage. Let’s look at an example:

Jungle Jim does a lot of stock research. He believes that the stock of the American motorcycle behemoth, Hogsome-Darlington (HOG), will fall in price. It is currently trading at $49 per share. Jim thinks that the stock is only worth $40 per share. He also thinks that its next earnings report, to be issued in early January 2018, will be very disappointing and will send the stock falling. Instead of selling HOG stock short, he buys a February 2018 Put with a Strike Price of $55.00.

This Put costs him $3.00 per share, or $300 for the standardized 100 share options contract. Because the stock is trading at $50 and Jim’s Put has a Strike Price of $55, this Put is considered an “In the Money Put”. The Put is considered “In the Money” because the Strike Price is higher than the price of the HOG stock.

Options can be “In the Money”, “At the Money” or “Out of the Money.” For an explanation of these terms, take a look at the chart below:


$55    /   $50  /    Put In the Money by $5 – The Put at $55 give you the right to sell stock at $55 when the going price in the market is $50.
If Strike Price > Market, Put is in the Money (ITM)
$55 /  $50   / In the Money by $5

$50  / $50  / At the Money (ATM)
Strike Price=Market Price
$50 / $50  /  At the Money

$50  /  $55 /      Out of the Money by $5 ()TM)
If Market Price > Strike

Now let’s keep in mind that Jim does not own HOG stock. He is hoping that HOG will fall in price and the Put will rise in price beyond the $3 he paid for it. And Jim knows that as the Price of HOG falls, his Put will rise in price. Remember, a Put gives you the right to sell the stock at the Strike Price. So if Jim (or some HOG stockholder) has the right to sell HOG shares at $50 when the market price of HOG is at $40, he has a valuable right. And as HOG price falls, the value of the Put will rise.

Brokerage firms require that customers execute options agreements to trade options and that they understand the risks involved. In this last example, the risk of buying a Put when you do not own the underlying stock is that the price of the stock will rise instead of fall and that the put may expire worthless. The risk of buying a put is less than short-selling the underlying stock, however. In this case, Jim’s loss is capped at $300, the amount he spent on the Put. But if Jim sells HOG short and HOG rises, he will have to buy 100 shared of HOG to cover. If HOG makes a substantial move upward, Jim could lose thousands of dollars.


[i] The Author has discussed the Secular Bear Market in several editions of the Newsletter and on the post of September 19th.
[ii] http//
[iii] The website of the Chicago Board of Options Exchange has lots of information on all of these option topics, including Delta. The exchange will also send you a CD with Option information and tutorials.

Sunday, October 1, 2017

Of Idiots and Idealogues


North Korea, or the easier to write, DPRK, is the last communist country on earth. And it one of the last few absolute monarchies. The DPRK shares this unique distinction with only had handful of fundamentalist Arabic countries. So it combines the worst forms of government. We have Kim Il-Sung (the father), Kim Jong Il (the son) and now Kim Jong-Un (grandson). In the DPRK, Kim Il-Sung has nearly mythic status. Many in the country, some by force but many by choice, see him as the “Father” of North Korea. Then came the “Son” Kim Jong Il, and the heavier, shorter, but probably much more shrewd “Son” Kim Jong Un. In only a somewhat crude metaphorical, and irreligious for the religious, terms, we have two pieces of the Christian Trinity.


The official state doctrine of the DPRK is Juche. Juche literally means self-reliance, but it is composed of three linked doctrines:
  1. Political Independence.
  2. Economic Self-reliance.
  3. Self-reliance in Defense.

Many scholars have suggested that juche completes the DPRK “trinity.”  It functions as the “holy spirit” that animates the many North Koreans. Call juche what it is, but it has generally worked. The nation is independent of a larger block of mutual defense partners. It engage is some trade, but it hangs on even as the sanction screws are cranked down. But number three is the salient.

In the mind of the North Koreans, they did not lose the Korean War. And in fact, the war has not really ended. There is only an armistice agreement in place. And the war ended three years after it began, the 38th parallel. 

The highly militarized regime has a million-man army. It is a defensive fortress. It has the 38th parallel lined with artillery pieces. More than 11.000 are aimed at Seoul. In a shooting war Seoul would suffer hundreds of thousands of causalities. A conventional war up the peninsula to Pyongyang would be fought hill by hill. Fortified position by position. Corpse by corpse.


The DPRK has been in-artfully cranking out belligerent babble for quite some time.  It has been the policy of America (and all Western nations) not to lower itself to responding to the lunacy. No longer. Kim keeps his place on orange alert all of the time. Militarist propaganda is everywhere. The military is worshipped. And its members are well paid and well treated, relative to the masses. 

Over the years, tensions have ebbed and flowed between the DPRK and the west. Trump has matched Kim’s belligerent mistranslations with two am tweets. The US and most advanced nations would not trade taunts, but Trump is all thumbs. In a most minuscule and certainly unforeseen way, and ever the “business man,” Trump has leveraged “egging on” economies of scale. North Korea likely employs hundreds of bureaucrats to figure out new ways to call American leaders capitalists running dogs. Trump does it solo and without a stipend. But we all digress…

There is an Arab folk saying that says “When dogs bark, don’t bark back.” That thought could be rephrased as “don’t stoop to their level.” Or maybe, “that remark is beneath contempt.” Or maybe do anything but feed the DPRK mouth machine. 

Stunts and chest pounding keep Kim firmly ensconced in power. A bowl of rice a day, a bed on the floor of cold two room apartment and a bicycle to ride to and from the munitions factory. But the is very effective method to what looks like to many America is “madness.” Kim has two goals and they are linked. Stay in power and survive to dictate another day. He has achieved the first and the second seems highly likely. 

When the PDRK got nukes, it got tenure. The history of the last 20 years makes it clear that nukes are necessary for rouge regimes to remain in power. Since the fall of the USSR, Russia can no longer maintain the independence of its former client states. After the first Gulf War, Saddam abandoned both his hamstrung nuclear program and his chemical weapons. Mohammar Qaddafi in Libya similarly gave up his quest for weapons of mass destruction. Both men were later overthrown and pulled out of holes to be executed. 


One of the pillars of juche is an independent self-defense.  Nuclear weapons are the way to assure that self-defense will work and assure the states’ existence. An analogy can be drawn to seemingly inapposite places-Israel and Iran. 

Both Israel and Iran are non-Arabic countries in a predominantly Arab region.  Israel has the US as a strong ally, but does not want to draw directly upon it for its defense. And the last thing the US would wish to do is intervene militarily for Israel. 

Iran has no strong ally that it can call upon. It occupies a very strategic position but is militarily surpassed by US forces. It could obstruct the Straights of Hormuz for a short time, but the narrow passage would soon be reopened and Iran would pay a severe price. 
Israel has a core principle that it won’t rely upon other countries for its defense. To that end, it has nuclear weapons, probably around 100 of them. Iran does not currently have nuclear weapons, but its program is on hold because of an agreement with the US that lifted sanctions.  


Ego and idiocy has no place in measured diplomacy. The facts on the ground must guide the policy choices and implementation. It should not be left to idiots or ideologues.