Covering High return Balanced Investing Strategies To
Make Money In Up Or Down Markets
A Publication of Princeton Research, Inc. (www.PrincetonResearch.com)
Contributing Staff: Michael King, Charles Moskowitz
July 03, 2016
Charles Moskowitz Discussion
Week 26 was a bit quieter than last week’s Brexit fueled action. We again had a small gain of $150 bringing YTD performance to $6517 while funds in use fell to just under $1,000. Our trade in the TBT calls was a disappointment since the demand for the U.S. treasuries continues to be insatiable, and with rates overseas being lower to negative the spreads between the German Bund, or Yen denominated issues and our 10 year clearly favor the US markets.
Unfortunately while this scenario seems great all around there are some unintended consequences that we will continue to deal with. The first is lower rates for the banks to pay out. Sounds good for banks to have money to lend at low rates, but the continued low rates actually keeps a lid on the profit of those banks. Traditionally, a steepening yield curve makes a major impact on profits while an inverted curve is generally a prelude to recession. Another issue is that the lack of available “low risk” yield forces all those who need yield to operate must ratchet up their risk tolerance in order to survive. These include pension funds, annuity funds, and of course anyone else who lives on fixed income. Without being an alarmist, the decline of the middle class can easily be followed by problems of the elderly. It has been years of returns that anyone on a fixed income can tell you have dramatically decreased buying power.
As to the market impact, consider that we are less than a couple of percentage points of all-time highs. Traditionally, and well documented performance show that without the financial sector Bull markets do not continue to advance. While it is true that most of the banks have passed the most recent “stress tests” and many are being allowed to reinstate their dividends and buybacks, this is in fact just return of capital at best, and self-liquidation at worst. The banks are already hamstrung with higher capital requirements (READ:lower leverage) and will be unable to produce the kind of returns that Wall Street requires for real interest in this pivotal group.
The A.A.I.I. numbers are still more bearish than bullish but the outlier is still the neutral reading, and this makes sense for an election year that has no candidate that the majority of people trust. Between the bearish (10% over average) and neutral (20% over average) a majority of people think we have a problem.
Since this is a long weekend after a week with an almost 1000 point range, I will not be issuing any new trades. I hesitate to issue any new long positions without some way to access the risk, and I also hesitate to initiate shorts that represent “fighting the Fed” trades.
The only exception is for the $100,000 account is a trade in DB, which Mike outlines in the Fundamental section. I exclude it from the options trades since it would require a margin account and may result in a possible purchase of actual shares. The trade is to sell short 5 DB 10/13 puts @ $1.25 or better. The thought is that if the stock, currently at new all-time lows, continues to decline we will be a buyer @ $13, less the $1.25 we receive or a purchase price of $11.75. If the stock goes higher in the time between now and October the puts will go worthless and we will make some portion of 100% of the premium received…CAM
All trades were based on your participation in the texting service to receive updates. Previous closed out trades not listed here may be seen in previous market letters.
New trades $ 10,000 account...In Texting we have a limited amount of words. In the interest of brevity: OPTIONS ONLY: 1 January , 2 February. The Quantity and Strike Price for each trade is specific. Trading is hypothetical. We may trade weekly options and they are noted: SPY 1/25 147 for SPY Jan 25th 147 Calls or Puts.For questions please call 702 650 3000. Closed out positions are found in previous letters dating back four years: June 27th;20th;13th:6th; May30th; 23rd;16th;9th;2nd; April 25th;18th;11th;4th; March 28th;21st;14th;7th; Feb 29th22nd; 15th; 8th; 1st;Jan 25th; 18th; 11th; 4th
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