My 2016 Report Card (The Good, The Bad And The Ugly)

What a crazy year this has been. We are living in an upside-down-world where despite terrible fundamentals, Brexit, Trump’s election, the Italy vote and the Fed raising rates, sentiment keeps pushing the market higher and higher. Instead of the crash we expect and deserve, we get an apparently endless rally. Nothing makes sense. Nothing has gone as expected.

Well, that’s not true. 68% of the stocks in my forecast last year still did exactly what I expected them to do.

A rising tide lifts all boats, so some of the toxic stocks I pointed out last year haven’t crashed yet, or haven’t fallen as far as I expected. (Some have gone up, though only negligibly). However, you’ll still see a generous amount of red in our shorts column (one stock dropped 75% this year) and an even more generous amount of green in our longs column.

I hope you’ve made some money on these – especially on the long plays. Drop me a line in the comments and let me know how you did.

I try to pick stocks that are so good or so bad that even a year-long nonsense rally can’t conceal their true colors. Judge for yourself how well I’ve done.

Here’s my report card…

Here’s How Our Plays Did In 2016

This has been a challenging year, but we still haven’t made out too badly.

We’ve seen our gold plays settle back a bit from their recent highs, though most of them are still up 40% or more. Because the world is going to have to deal with its burgeoning debt crisis via inflation and currency devaluation, gold remains a vital investment for every citizen. Obviously gold won’t rise in a straight line, but over time it will appreciate significantly. It has weakened considerably since the election based on the misperception that President-elect Trump will be pro-growth and that growth will somehow be sufficient to repay our debts without inflation. While it may weaken further, I view its current price as very attractive because I view gold as a long term investment, not as a “trade.”

The best way to view the current gold sell-off is as “fake news.” If gold trades lower, you should buy more! Gold is an investment in monetary disorder and the incompetence and corruption of central bankers and governments. Anyone who thinks that Donald Trump is going to put an end to that is smoking dope (which is now legal in California, which is a good thing because west-coasters are going to need a lot of weed to dull the pain when that loony state goes bankrupt due to the reckless financial promises of its Democratic politicians). Everyone should be buying gold at these prices to save themselves – not for a “trade” but as long-term protection against a future where the value of your paper dollars is destroyed even further than it has already been destroyed. And in addition to buying gold outright, you can own gold by investing in the shares of goldmining companies that remains undervalued.

As far as the toxic stocks in our shorts column, they are still overvalued and going down. I’ll have more information on them in my upcoming 2017 outlook, so stay tuned.

Remember, these are just the stocks I predicted would go up or down a year ago in my 2016 forecast. These don’t include other plays we put on in SMI during the year, they are not a reflection of how the related options may have performed, and of course, they are separate from our Zenith portfolio.

The prices of AA and SH have been adjusted to reflect their reverse stock splits earlier in the year.


Going Up (Long)

Symbol

Price 12/29/2015

Price 12/22/2016

Alcoa Inc.

AA

$22.68

$29.20 (up 28.7%)

Annaly Capital Management Inc.

NLY

$9.40

$10.26 (up 9.14%)

Central Fund of Canada Ltd.

CEF

$10.04

$11.38 (up 13.35%)

Chimera Investment Corp.

CIM

$13.88

$17.48 (up 25.94%)

CBOE Market Volatility Index

VIX

$16.10

$11.42 (down 29%)

Global X Gold Explorers ETF

GLDX

$16.79

$25.99 (up 54.79%)

Market Vectors Junior Gold Miners ETF

GDXJ

$19.64

$28.43 (up 44.75%)

Navient Corp.

NAVI

$11.49

$16.54 (up 43.95%)

ProShares Short S&P ETF

SH

$41.08

$36.29 (down 11.7%)

Sprott Physical Gold Trust

PHYS

$8.76

$9.23 (up 5.36%)


Going Down (Short)

Symbol

Price 12/29/2015

Price 12/22/2016

Alphabet Inc.

GOOG

$776.60

$790.98 (up 1.85%)

Amazon.com Inc.

AMZN

$693.97

$765.56 (up 10.31%)

Chipotle Mexican Grill Inc.

CMG

$489.94

$391.02 (down 20.2%)

Deutsche Bank

DB

$24.87

$18.48 (down 25.7%)

Facebook Inc.

FB

$107.26

$117.25 (up 9.31%)

Fitbit Inc.

FIT

$29.35

$7.35 (down 75%)

iShares Nasdaq Biotechnology ETF

IBB

$343.00

$266.28 (down 22.4%)

Netflix Inc.

NFLX

$119.12

$125.50 (up 5.35%)

SPDR S&P 500 ETF

SPY

$207.40

$225.01 (up 8.5%)

Standard Chartered plc

STAN.L

581p

662.58 (up 14.04%)

Starbucks Corp.

SBUX

$61.13

$57.03 (down 6.7%)

Tesla Motors Inc.

TSLA

$237.19

$207.74 (down 12.4%)

If you owned these stocks in a hedge fund, you would have done very well last year. Losses on individual positions were relatively small and there were some big winners. You should always use stop losses (I use 20%) on all positions to avoid big losses on stocks. Options require a more active and sophisticated approach that I will describe in future pieces as well as in Zenith.

The Market Can’t Stay This High Forever (And It Won’t)

The post-election rally has been driven exclusively by sentiment; it has little to do with fundamentals. The stock market was overvalued before Donald Trump’s election and it is even more overvalued now. The market remains heavily weighted in favor of the so-called FANG stocks – AMZN, FB, GOOG and NFLX. Excluding NFLX (which is not in the S&P 500), the three other FANGs plus MSFT and AAPL have a combined market cap of $2.3 trillion or roughly 12.5% of the total $19 trillion valuation of the S&P 500 index. The market has only traded more expensively during the dot-com bubble by most measures. Today, the S&P 500 Market Cap/GDP Ratio is at 125%, near a historic high, and the Shiller Cyclically-Adjusted Price Earnings Ratio is at 27.02 compared to its historical mean of 16.71. If you believe in the return to the mean and that markets don’t grow to the sky, you should not be chasing stocks at these levels.

Respected research house Evercore ISI surveyed institutional investors before and after the election and found a sharp change in market psychology caused by Donald Trump’s election victory. The firm wrote that, “Post-election, investors believe the world has changed. Whether or not Trump’s pro-growth agenda is enacted or succeeds, investors we surveyed seem to buy into it. For example, the consensus of investors we surveyed yesterday put the S&P at the end of next year [2017] at 2425; a similar survey we conducted on Nov. 3 put the S&P at 2087.” Major brokerage houses are also boosting S&P 500 targets. Goldman Sachs is looking for the index to hit 2400 by the end of next year (of course the firm may be talking its book considering the new administration is teeming with ex-Goldman bankers). RBC just came out with a 2500 target for the S&P 500. No doubt the Barron’s survey of top strategists will show these oracles fighting to come up with the highest price target and not a single one calling for the market to decline. Considering every president who succeeded a two-term president in recent history saw a recession early in his first term, investors and strategists could be setting themselves up for disappointment in 2017.

I’ll have my full 2017 outlook – including my forecast for what’s going up, what’s going down and how to profit – for you early in January.

Sincerely,

Michael

25 Responses to “My 2016 Report Card (The Good, The Bad And The Ugly)”

  1. Good Morning Michael: My portfolio is up 16.28%, net, since September 20th. I made some costly errors in trades in the first month. Although I am disappointed in my performance, I give you all the credit for these great results. Imagine complaining to most investors that you only earned 16% on your portfolio in the last three months! Thanks again. Kent

  2. I became a lifetime member of Zenith Trading Circle on Sept.23,2016.I followed and printed the “Z Score ” and “Carbon Trade” information and purchased every “action to take” that you recommended.I believed that each action would be primarily a negative score and not sell a positive score.Thus I never did.Likewise,I added more contracts to increase the profit.The first two sales that you called for resulted in losses.Since I had higher contracts, the loss was greater.I had many other contracts with increased contracts which increases the total costs and increases the losses.On your Dec. 19 E-Mail,you recommended Sales of 8 trades for profits. I followed the recommendation and sold the 8 trades. However,my 8 trades were not profits. I did not understand the sale of the trades of January ,March,and May. Idid sell them with numerous contracts when I purchased them.The sales of the previous 2 contracts and the 8 sales resulted in several thousand dollars of losses. I am confused now how we continue with the Z Score and the Carbon Trade.I also need your help on the use of extra contracts on the initial buys or can they be added during the active contract.1

  3. Zenith gigantic disappointment but understand much of the issues. I receive text message alerts and have had difficulty getting or out at the values you show. I place the trade generally within a few minutes of the alert and use Fidelity to trade. I would be interested in knowing the number of members in Zenith. Undoubtedly there is some information sharing by Zenith members with non members, which is exacerbating the problem.

  4. Bruce Montgomerie

    I am a fairly new subscriber, but since joining a few weeks ago I have made every investment recommended. So, this time next year we’ll see how things turn out.
    I loudly applaud your yearend wrap up. Most in your business don’t do it or don’t do it as throughly and explicitly. I think your approach is one all should follow–regardless of the year’s results. For me, the honesty and integrity reflected by doing so is at least as important as the results for a particular year. That’s how we all learn .

    KEEP UP THE GOOD WORK !

  5. Randal Archibald

    Michael I do like your platform and your no nosense approach, the way you tell it like it is. To be fair to my self I am not happy with my peformance of my porfolio what a time to start Zenith. I followed your recomendations to the letter I was able to buy into 12 put stategys I only made money on one, VRX carbon trade, the rest either expired worthless or when you told us to get out cost me more to exersise because of the per contract cost. I started with $8000.00 us I am down to $1200.00. Hope 2017 starts off with some winners. Happy new year Michael I am still in because you make sense and I belive in what you are doing.

  6. I studied the Z score method back in business school and effectively applied it to Chrysler Corporation in 1980; so I was impressed when you explained your use of it.
    However, right now you are fighting the tape, and I have lost almost as much money as I have spent on your Zenith Trader. I will have to get out and ask for money back if that continues. Until this irrationally exuberant market starts to cool use the Z score and your analysis to identify some medium to short calls on potential winners. I remember Adler did that in looking at Xerox and its strengths in the 1970s.
    I appreciate your candor and related comments.

  7. As to several who mentioned that they couldn’t buy the option at the same price after the alert is issued: I too, have had that problem> However, what I do, is that if I believe Michaels general premise about the company, if I can find another option with a different strike or a different expiration date, whose premium is not that much different or that much more expensive and also hasn’t moved at all, I will buy those and get more time or a closer strike to in-the-money without paying up in premium just because there was a recent recommendation that inflated the premium before I could get to my computer.

  8. Robert F. Pacione

    Hi Michael! To a previous question you had asked from your subscribers. If we had profited at all. Well! I am one of those lucky ones. Who is restricted from abling myself to invest as you suggest to do. Stocks are my only options and I have taken a beating all year. Regardless! I hold gems in my portfolio. Have tried investing through the year in them. Yet! The timing was horrible and I bought high and sold low all year basically. Cannot get it right. I do hope one day I am able as I do see all of your skills and grander understanding of this market. Just my patience is shot and dealing with situations that I have not broke through as of yet. Soon! I am driving for.

    Although! Today a thought has come to mind for some to think about. A message of sorts was a warning at least of A.I. (Artificial Intelligence and what it means for mankind and the future). A real deep understanding and rise of this technology already at work in society. Hypothetically If Casino’s were using this technology. Gives mankind an even more unfair advantage. Are these super computers storing everybody as a file. Recording our movements. Are habits. Our tells. Those cards given to us. That earn us points for basically nothing. Actually just a switch turned on. Cameras placed to recorded. God knows how many terra bytes at a time. With these files our wins and losses being stored and sorted like a Human Algorithum of sorts. Creating us in digital form. Through numerical patterns and Algorithums. This technology would technically be cheating by been able to have advantage before cards are dealt inside the shufflers. Eyes are all inside. Machine is controlled by the same intelligence at the helm. While our profiles are used against us. Intelligently using our digital selves against us. What if the markets become this way over time as it is introduced one day.

    As computers mature. Just like I take notice with games or apps. It is all a data building facility that is held in files for each individual been chained to the grid. Which obviously is most of us. My theories through creative thought. Just come to my attention and to find out if others look at the markets for future investing. Why! I know. I have gems. Just in time. I hope I have the money to invest and make a real profit to change my current living situation. My luck was so bad. That I knew when the pot stocks would rise as they did incredibly. I had to sit on the sidelines and watch Cgc and Ogi climbed Mount Everest. I laugh. Happens all the time. lmbo.

    As A.I. and the companies using it like G.E. for there new software as Bill recommends. To recording Stellar biotechnologies data base of immunization therapy applications in the future. Hopefully sooner then later. lol As it gobbling up data of human actions. Intelligently recording and understanding human behaviours. Making us glass objects as so many people are becoming as the days pass before there eyes. Unaware and truly showing signs of ignorance and possibly believing that others would do such a thing. As! We Know. Man will do anything to get what he wants. At any cost. Even when trusting new intelligence there curiousity cannot let go of.

    Only to become powerless if they do not double check before they walk forward. Even if its gonna cause them to lose it all in the end. Those impulses and emotional choices dictate a road covered in sand that’s already been repaved and trampled on in anger.

    This creation of controlling the world in time. Is already well a head. My real point of awareness towards the future of A.I. is quite frightening and I hope my prediction of the system crashing in order to recreate what has been asked from the start. Does not happen. If! I am alive. I hope I do not see the world come to rubble with a war we created by interests of stupidity before looking into the depths of the warning signs. Given! Even in physical form over time on occasions when it was crucial for the period of its future and how much further we could have become. Shooting our selves in the foot. Simply is a hilarious characteristic of human behavior. As it only registers when it hurts the most and that pride has been infiltrated by a reality of the truth you have fought off through ignorance and petty feelings of weakness. That goes for all of us.

    Lastly! I’m just writing because I thought. Why not. Just food for thought as I see it becoming if not already into the markets. That in itself would be devastating in a whisper. I reall hope at the end of it all. As amazing as the creation is. I really do hope again that any day it arises in mind. Think the greater reason and a truth will unfold. Look between your eyes while looking behind with your eyes closed. Reflect and see the day that has past to unfold answers to past and future moments. Never turn your back from the idea of The Brain to the Computer and genetically how it became our technology. meaning us. The minds eye unfolds intelligently as it was programmed to do numerically.

    So! I guess with out any true judgement towards the future of technology. Its here and its growing so rapidly. That humans so blinded like zombies to the whisper of a typhoon before it speeds up and comes to destroy every waking thought of darkness you had pushed back into your mind before it unfolds before you. As life has worked in secret forever since abiding by the power it brings to control a nation or all nations.

  9. Jacqueline Aucoin

    I joined up with you several months ago and have tried to make several of your recommendations.I am not the sophisticated or as knowledgeable as most of your Clients. It has not gone well for me and I do not know what I am doing wrong. Maybe more instruction is necessary. What will happen either at expiration or closing sooner DB.? It is gaining. Not good. Can you explain more. Thank you. I do like your comments and the strategy seems good, but I can not make it,

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