I am writing to you today from the middle of the Atlantic Ocean, a few hundred miles off the coast of Newfoundland. I’m heading for London for a week, and ultimately to Nice, France, where I’m looking forward to spending the winter. It’s a beautiful, lively small city on the shore of the Mediterranean Sea. I’m thinking of making my home there. This trip is for exploratory purposes.
As the ship rocked gently through the waves, as often happens in the wee hours of the morning, I awoke thinking about the market. Yes, I know. That’s not normal! I was wondering how the rest of the world viewed the selloff in the US markets on Monday. So I signed into the ship’s WIFI and checked my phone. The CNBC newswire read something like this:
FUTURES RALLY ON EASED TRADE FEARS.
The report predicted a strong open for US stocks.
I smirked and went back to sleep. The overnight markets are like Vegas. What happens in Vegas, stays in Vegas. So goes the pre-market futures trading much of the time.
I checked in again when I woke up for the day and it was the same story. Big rally expected.
Then I went downstairs to the Brittania dining room and enjoyed a nice breakfast. The food and service was delightful as always. I highly recommend a Transatlantic crossing on the Queen Mary 2 for traveling to Europe if you have the time.
I don’t have the time for pure leisure purposes. But I can bring my work along for the ride and I can still communicate regularly with our great publication team, and most importantly, with you. It’s really a lot of fun!
Later, this morning, sometime after 10 AM I again logged into the ship’s satellite WIFI and checked the market. Lo and behold, up…
DOWN 2.27! What happened to that big rally that the mainstream media was pushing?
Well, there’s a lesson here. If you’ve been following the stock market for any time at all, it’s one you already know. Don’t believe everything you read or see in the mainstream financial media. In fact, don’t believe any of it. Start by disbelieving, and do a gut check. If a story doesn’t feel right to you, know that your gut isn’t misleading you!
You must always keep this one thing in mind. You are not the Wall Street media’s customer. They are not disseminating this information for your benefit. The Wall Street media is in the business of selling advertising. Their customers are the Wall Street institutions, not you. You are the target of the advertising. You are the media’s product. They deliver you and your money to Wall Street like a pizza. Wall Street pays them to deliver your eyeballs and ears, and most importantly, your bank account, to them.
It goes beyond that. Once they have your bank account, they pay the media to brainwash you into leaving it in their control as they siphon fees from those accounts, or worse, take the opposite side of your buy and sell orders. If owning an investment was so great, why are they encouraging you to buy it, while selling it to you out of their own inventory?
The problem is that the media’s advertisers, those guys in the black hats to whom CNBC and the Wall Street Journal sell all those ads, are often also the subject of the “news” stories. The whole industry is built upon this conflict of interest. Everything the Wall Street media does is geared toward getting you to buy Wall Street’s products.
That’s why, on the rare occasions that they tell you something negative about the markets or an individual stock, it’s almost always too late. They emphasize whatever is bullish, and minimize bearish reporting.
In reality the mainstream financial media produces informercials. That’s right. You are watching and reading infomercials! CNBC is the longest running infomercial in the world. Now, that’s not to say that absolutely everything they’re telling you is wrong. There are always a few nuggets of wisdom hidden in all the promo. There are some people worth listening to. Just be aware of the real media perspective, and your role in their business, when you watch or read. That will help you to separate fact from Wall Street spin.
As for today’s market, if you’ve been following me, you know that I’ve been warning that 2018 would be a time of transition to a bear market for more than a year. That transition has been elongated, but my analysis of the data has steadily reached the same conclusion. The bear is coming. My work tells me that we’re in the early stages of a bear market.
Now if you do not agree with me about that, you can stay fully invested and assume the risk that your investments won’t tank, or if they do, that they’ll recover quickly. That’s a choice that you always have.
But if you agree with me that we are entering bear market, there are ways to protect the bulk of your capital, and still profit from the market’s swings in both directions. First, you can get your money out of the stock market and buy safe short term T-bills, to roll over as they expire. Rates are rising and you’ll benefit from that increase in rates by staying with shorter term T-bills and rolling them over when they expire.
You can potentially profit from the huge swings that are typical of a bear market by trading options with just a small portion of your capital. Call that your “risk capital” or “trading capital.” It’s that portion of your capital that you would be willing to risk losing if an options position goes against you. Naturally, that amount would vary depending on your personal circumstances and comfort level with trading risk.
You could use your risk capital to buy either short term put or call options depending on the market’s short term direction. My emphasis has been on puts on the SPY, but calls can be very profitable in those intermittent face ripping rallies that are typical of bear markets. Several of the gurus here at Money Map Press specialize in just that kind of trading.
My colleague, Tom Gentile, has one of the best methods I have ever seen for using your risk capital to potentially extract profits from the swings in individual stocks, regardless of the market’s direction! It’s called the Money Calendar. To learn more, click here.