NOVEMBER 2018 DESERT OF THE REAL ECONOMICS INVESTMENT NEWSLETTER

This Thanksgiving Day will bring market valuations for which investors will share no bounty. Markets have continued to tank.  Some volatility that helped traders.  Tech stocks, particular AAPL and the other FANG stocks got mauled.

Let’s rehash where we are. The paragraphs below chart the declines of October:

A.    DJIA. The Dow began October at 26,500. As of the 30^th, it has dropped to 24,649.

B.    S&P 500. The S&P started October at a little over 2900. It has since fallen to 2,659.

C.     NASDQ. This index stood near 8,000 on October 1 and has since dropped to 6700.

Bringing this chart current will plot the further fall:

1.     The DJIA now stands at 4,464.69, on November 20th, below that the price that began the month.

2.     The S&P 500 is at 2,649.93, again below the monthly start of 2659.

3.     Finally, the NSDQ comes in on the 20^th of November at 6,972 down from 6,700.

 WE AIN’T SEEN NOTHING YET?

As traders, the Authors do not track follow indices. We are aware of trends and prices burps. But as traders, we watch the charts, not the MSNBC Chyrons. But of course to each his own.  More of this later…

In last month’s issue of this newsletter, we addressed some strategies that more active investors and traders can consider. But as we noted, these strategies are risky and somewhat complicated.

BUY AND HOLD …

The Authors frequently note that the “buy and hold” strategy that most all financial professionals and investors follow. There are three Huge (Gee, where did the Author Rob get this?) problems with this strategy. Let’s take a look:

1.     Historical Bear and Bull Secular Markets. Over time, markets move in multiple year swings from Bear Market to Bull Market. These are called Secular Cycles. (In this case the term “secular” does not refer to nonreligious. It refers to time.) Generally, the markets crank higher, but for certain periods of time, such as 1930 to 1950, and 1968 to 1981. If these are the years in which you are investing, times were lean. Imagine making your nest egg in 1968 and then trying to retire in style while the market falls.

2.      Certain events can make investors call on their funds early. Unreimbursed healthcare expenditures can wipe people out. Again, if your returns have fallen, you have a risk of losing relative more.

3.     Loss of compounding effects. I have $100 invested.  I lose 25% and my   investment falls to $75.  I want to get back up to $100.  But because of the amount of my loss, a 25% return will not bring me back to $100. I now have $75 and need an increase of $25 to return to $100. But 25% of $ 75 will only bring me up to $93.75. ($75 + ($75 * .25=18.75). To get to $100, I will need to get a 33% return. $75 * .33 = $25. $75 + $25 = $100. If you lose 50%, your $100 falls to $50, you will now need a 100% return to come back up to $100.

NEW PRODUCTS FROM DESERT OF THE REAL ECONOMICS STRATEGIC INVESTMENTS

The new products just keep rolling out the proverbial “door,” often just one move ahead of the federal prison door. Last month we added two more indicators to our Black Box Barometer-The Dumber Neighbor Distribution Derivative and the trump iPhone Irrelevancy Oscillator. Sales of the Black Box Barometer economic and finance production engine are breaking all sales goals. Our broker-dealers in Kazakhstan, Syria, Yemen, South Sudan, Uzbekistan and Mongolia have been very successful in selling Black Box Barometer subscriptions to reluctant government officials who are broker-dealers have blackmailed.

Our Russian consultant Petrov “Potemkin Village” Vasilovitch, along with his ex-KGB comrades, have plied leaders from these countries with alcohol, drugs, and the promise of wet sheet sex.  Video cameras hidden in the walls and ceilings of the trump tower suites do the rest of the work.

NEW PRODUCT LAUNCH: PRE-LANDFILL COLLECTIBLES

One of our affiliates visits many estate sales and often comments about the gullibility of people to spend thousands, perhaps tens of thousands of dollars, on country chic “collectibles”. Things such as Franklin Mint Plate collector plates and “Limited Releases of classic US coins “bathed” in 24 K gold. *

Our affiliate recently went to a sale where the deceased had accumulated over 1,000 Beany Babies. These 1990s stuffed collectibles have long since faded from financial fame. Now, you can hardly give them away.

Everyday the airways and general interest magazines aimed at older Americans hawk the collector plates, phony gold coins and display-box toys.  Our retail analyst has identified these faux collectibles renamed them call pre-“Landfill Collectibles.” Basically, the landfills will eventually “collect” them.

This new company, which our affiliate “Storage Unit” Stern will operate, will perform three valuable services. First, the company will contract cheap landfill space in rural areas and the Deep South, where most of these pre-Landfill Collectibles have and will be sold.

Secondly, we will arrange pick up from the owner of the pre-Landfill Collectible so they do not have to suffer the embarrassment of hauling away the junk craptonite that fueled their dreams of retirement in the Ozarks.

Finally, Pre-Landfill Collectibles will distribute advertising material and samples of new, soon to be Pre-Landfill collectibles for the various vendors such as Franklin Mint.

 YOU WILL NEVER BE CHEATED IN THE DESERT OF THE REAL. MOST PEOPLE ARE GOOD ENOUGH AT CHEATING THEMSELVES.

*Cabbage Patch Dolls were all the rage in 1983. But they still have some value. Each doll came with a birth certificate. Undocumented immigrants can use the Cabbage Patch Dolls’ birth certificates to obtain SS#, drivers licenses and passports.

OCTOBER 2018 DESERT OF THE REAL ECONOMICS INVESTMENT NEWSLETTER

OCTOBER 2018 DESERT OF THE REAL ECONOMICS INVESTMENT NEWSLETTER

We are moving into the Fourth Quarter of 2018, a year that brought good market gains in a streak going back to 2009. Last month’s newsletter addressed some protective strategies for the eventual pullback. Historically, October is not one of the stronger months for the stock market. This October was not much different. Let’s take a look.

A.    DJIA. The Dow began October at 26,500. As of the 30^th, it has dropped to 24,541.

B.    S&P 500. The S&P started October at a little over 2900. It has since fallen to 2,659.

C.     NASDQ. This index stood near 8,000 on October 1 and has since dropped to 6700.

The Russell 2000, a broader index of stocks, got mauled. It began October at 1,673 and fell to 1477 as of October 30^th.

ARE WE THERE YET? ARE WE THERE YET? ARE WE THERE YET? ARE WE THERE YET?

How many parents have reached over into the backseats of their cars to slap their bothersome brats into silence when hearing this whine?  By relevant analogy, hundreds, perhaps thousands of market analysts, journalists, economic pundits and Facebook foghorns are telling us that a major bear market is coming and, by implication, “are we there yet?” An equal such cohort says that we are not. The Author Rob hasn’t a clue if “we are there yet?”

What we can do for market downturns is the same thing we do for market upswings. We develop strategies, improve upon them, and deploy them when necessary. The problem is that it is relatively easy to make money in an upwardly moving market. Making money in a downturn requires strong short skills or expensive money managers.

In the September edition of the Desert of the Real Economics Investment Newsletter, we addressed strategies for a market downturn such as using stop-loss orders to protect your gains and trimming your positions and taking profits. This month we will look at some advanced strategies that are only suitable for the seasoned investor.

WHAT GOES UP MUST COME DOWN. AND WHAT GOES DOWN MUST COME UP. BOTH AT ONCE.

Inverse funds are exchange-traded funds that are structured to move inversely, or opposite of, a particular market index or asset segment.  Let’s look at a couple of inverse funds.

·      SPDN. This ETF seeks a return that is -100% inverse of the return of its benchmark index for a single day. (More about this single-day issue later.) So, if you predict that the S&P 500 will fall over the course of the day, you could by this ETF to take advantage of that pullback.

·      CHAD. This ETF seeks daily investment results, before fees and expenses, of 100% of the inverse of the performance of the CSI 300 Index. The CSI is a Chinese stock market index.

Inverse funds can also be purchased that seek 2x and 3x of their relative index. For example, SPXL is designed to return -300% of the S&P 500 index. These funds use leverage to achieve these results.

JUST DON’T BET THE HOUSE

As in anything in life and investing, there are risks. A major risk identified earlier is that they should not be held overnight. Most ETFs are reset daily and unless you are in a trending market, volatility in the index can lower your returns.

There are also compounding risks that can occur when inverse ETFs are held over several days of choppy movements and volatility. Here is what can happen:

	ETF Daily Starting Value	Benchmark Return	ETF Daily Ending Value
Day 1	$100	+10%	$110
Day 2	$110	-10%	$99
Day 3	$99	+10%	$108.90
Day 4	$108.90	-10%	98.01
Day 5	98.01	+10%	$107.81
Day 6	107.81	-10%	$97.03

As you can see, you started out with $100. The index fell three of six days and increased three days.  But you lost $2.97 because of the effect of negative compounding.

For the right investor, inverse and leveraged ETFs can be valuable tools. But for the inexperienced, they can be open-blade buzz saws.

THE NEW PRODUCTS JUST KEEP COMING!

In last month’s newsletter, we announced the development of the Black Box Barometer, an economic and market direction indicator. The Black Box Barometer uses several leading indicators to gauge market and economic activity.

Monthly subscriptions are available at the Desert of the Real Strategic Investments website. The Black Box Barometer has not yet produced accurate economic and investment predictions, but it will. By using our alternative facts, our predictions cannot be wrong.  Subscriptions cost $120,000 per month. That sounded like a good round number and it is enough keep our brokers in the Cook Islands, Somalia, South Sudan, Mongolia, Uzbekistan and Yemen from winning their lawsuits against us for unpaid commissions.

The two addressed last month, designed to sniff out overextended economic expansion, are the Beer Belly and Boating Binomial Distribution and the Trailer Park V-Twin Correlation. 

Two more market monitors were incorporated into the Black Box Barometer this month, the Dumber Neighbor Distribution Derivative and the trump iPhone Irrelevancy Oscillator.

WARREN BUFFFET ON BUBBLES AND BUBBLE HEADS

Warren Buffet, one of the most successful and well-known investors in America describes an asset bubble in succinct and humorous terms. In a recent CNBC interview, entitled “Warren Buffett on why bubbles happen: People see neighbors 'dumber than they are' getting rich,” describes a bubble as a situation where:

"People start being interested in something because it's going up, not because they understand it or anything else. But the guy next door, who they know is dumber than they are, is getting rich and they aren't," he said. "And their spouse is saying can't you figure it out, too? It is so contagious. So that's a permanent part of the system."

Under contract to Desert of the Real Economics Strategic Investments, our Russian consultant Petrov “Potemkin Village” Vasilovitch, along with his ex-KGB comrades, have developed algorithms to monitor cell phone call traffic in selected zip codes that have a high concentration of dumber neighbors. The higher the traffic volume, the closer we are to the bubble bursting.

The other Black Box Market Monitor is the trump iPhone Irrelevancy Oscillator. It has been observed that the more volatile the economic and the political situations become in the US and around the world, the less time trump spends “leading,” and the more time he spends on his unsecured iPhone talking to Kayne West, Rosanne Barr, and hookers met while urinating. Petrov Vasilovich got a bootleg copy of the trump IPhone monitoring software from the Russian Secret Service in exchange for three bottles of vodka and a digitized Bluetooth video of “Donald does Democracy.”  The Chinese, Iranians, Israelis, and Saudis also have copies of the software, but they would only webhost the Oscillator and not license and support it. The software runs on an IPhone.

Well, that is one more month under the rails for the Desert of the Real Economics Investment Newsletter. See you in November.

EVERYDAY ABOVE SAND IS A GOOD DAY IN THE DESERT OF THE REAL!