Boom & Bust: The Trump Surge Is Setting Up A Slump

As of yesterday, the Dow has set record close for 10 straight days in a row, which represents the longest winning streak in the index since Ronald Reagan occupied the White House. If that trend extends three more days, it will be the longest ever.

Since the day after the presidential election in which iT was clear that Donald Trump’s aggressive protectionist agenda would rule the White House, Dow futures have catapulted 20%.

But amid all the good news in the markets there are some telltale signs that portend some short-term threats, signs that are obscured by all the hubbub in the headlines.

First, as I’ve pointed out before, what goes up must come down. While I’m sticking with my prediction that the Dow will smash through 30,000 around or before the mid-term elections, the road to that record will be a bumpy one. And the seeds being sewn for those bumps are increasingly become clear.

Despite the 10-day record in the Dow, the fact that most of the gains have been seen in ETFs and mutual funds has come at the expense of other sectors like energy and small-cap stocks. So gains in the market have been largely concentrated in the industrial and large-cap stocks.

Historically when we see major movement in prices, whether up or down, that are locally concentrated in a few indices or sectors, what we nearly always see eventually is a correction.

On the one hand, if prices become too low then investors see stocks as undervalued which sets off a buying rush. On the other hand, if prices become too high too quickly, investors recognize at some point that stocks are overvalued and begin selling.

With the Dow hitting multiple records in a short amount of time — based almost entirely on the news cycle and on President Trump’s pledges for protectionism — we’re almost certainly setting up a massive sell-off within the next few weeks (if not days) in which investors will seek to capture profits.

This presents a perfect opportunity by either shorting select stocks or buying certain put options and profiting on the correction. The only question is by what and when the sell-off will be triggered.

I’ve been getting email from many readers showing interest in that and other topics and welcome all such comments, questions & requests. As I get a sense of what you would like to see, I can work it into future columns. So what would YOU like to see… or learn… or ask? Email me at: Mike@MikeGaliga.com

Trump’s Coming Assault on ISIS and the Oil Market Conundrum

Over the last 24 months the U.S. economy saw some of its toughest economic challenges since the Great Recession was at its peak nearly a decade ago. After OPEC — led by Saudi Arabia — refused to cut back on oil supply, global prices took an expected nose dive. And the result was bankruptcy for hundreds of U.S. oil and gas exploration and service companies.

The bid by OPEC was explicitly to put a stop to the American ‘shale explosion’ which was taking massive market share from Persian Gulf producers and put it in the hands of U.S. producers. It was one of the largest shifts in commodities markets in history, and the Sauds put a swift end to it.

But, as Americans have proven time and again, we came back even stronger after those producers who weathered the storm rebounded with a renewed fiscal discipline that has made them more competitive than ever before. And competition coupled with deep national deficits by OPEC nations has the U.S. poised to come roaring back.

I’ve predicted in recent weeks that the price of Brent crude, the benchmark for oil commodity prices, will hit $65 per barrel at some this Spring, if not before. But predictions like this always have a caveat, and this caveat has a name: Donald Trump.

As has become the new modus operandi, the world hangs on every word and tweet issued forth from the Trump White House, and the U.S. economy is no exception. As I pointed out in a recent post, the Dow’s new record of 20,000 was hit purely out of emotional speculation about Trump’s intention to rebuild American competitiveness by balancing trade agreements and restructuring tax policies. But the key point is that the path from here to 30,000 will be filled with all sorts of unpredictable events, both up and down, in the next 24 months.

That said, a recent Trump pronouncement reveals a hint as to what may happen to the global oil market. But I’ll sum that hint up in a word: volatility.

In an interview with ABC’s David Muir just over two weeks ago, President Trump explained that the problem with ISIS and its continued terrorist incursions around the world is that their operations are heavily financed — financed by oil. Among the geopolitical stratagem employed by the heads of ISIS is the capture and control of strategic oil fields around the Middle East. And it has been the continued production and sale of oil from these fields that has bankrolled ISIS to the tune of hundreds of millions.

In his ABC interview, Trump quipped, “We should have kept the oil when we got out. And you know, it’s very interesting. Had we taken the oil, you wouldn’t have ISIS, because they fuel themselves with the oil. That’s where they got the money. We should have taken the oil. You wouldn’t have ISIS if we took the oil.”

It doesn’t take a political genius to figure out that that comment very likely was a Freudian tell of the strategic cards the president is holding. Keep in mind this was less than a week after his inauguration during which his fast-paced administration was pondering and acting on his most important agenda items.

That revelation adds fuel to the reality that Trump has been very aggressive in his rhetoric about destroying ISIS and controlling the threat of terrorism in the U.S. and against U.S. foreign interests. So what does all this have to do with the oil market?

It’s simple. Irrespective of actual supply and demand of crude oil, history shows us that any time there is military unrest or outright conflict in and around vital oil and gas infrastructure — particularly in the Middle East — investors get spooked. And when investors get spooked, they act…most often irrationally and erratically.

And there’s nothing more advantageous to the unemotional, rational investor than opportunities created when spooked investors start buying and selling out of fear for the future.

If you’re old enough to remember the Iran hostage crisis and the resultant lines at the gas pumps, you know what I’m referring to. The world is much more unstable than it was then, and global politics is even more unpredictable. Should the Trump administration take decisive action against ISIS in the Middle East, it won’t be unilateral. It will be a coalition. But that coalition will prompt action from Russia on behalf of its client-state Iran and from Turkey and Saudi Arabia.

What will that picture look like? Nobody knows. But what I can tell you with certainty is that oil prices will move, and they will move in a big way. So while my overall outlook is very bullish on Brent crude regaining much of its former glory, it won’t be without significant play over the next six to eight months.

Be on the lookout for future updates as I continue to watch these developments and my global sources very closely.

Do you know how to profit on such opportunities? Do you know how to make money as markets rise & fall? The coming volatility should offer terrific opportunities to grab quick profits as select stocks move bullishly & bearishly with swings in the price of crude. Based here in Oklahoma, I am so close to this particular situation that I can practically smell those opportunities.

If you need a refresher on how to make money when stocks rise & fall, let me know. I’ve been getting email from many readers showing interest in that and other topics and welcome all such comments, questions & requests. As I get a sense of what you would like to see, I can work it into future columns. So what would YOU like to see… or learn… or ask? Email me at: Mike@MikeGaliga.com

Greece Debt Will Likely Sink Europe’s Ship

Remember the last round of the Greece crisis and all the worries about financial meltdowns if Greece defaulted on debt it could not pay? Remember the call to kick Greece out of the union?

The dire warnings came. Markets might collapse. Investments would be slaughtered. Even some of the big bankers would lose on this impending disaster.

And then, almost magically, a last-minute deal was struck that basically kicked the can further down the road. Debts could be paid again. Impending financial disaster delayed. Crisis averted. All was well in the world.

A funny thing about the kick-the-can strategy: eventually the progression of time makes you catch up to that can again. And each time, it’s harder to give it another good kick down the road.

Now here were are, with international headlines awash last week with renewed warnings that the national debt for Greece remains unsustainable. And even with reports of positive economic growth, it’s unfortunately too little, too late.

The problem with Greek debt is more than a simple matter of debits and credits, and the minds behind the European Central Bank — the institution financing the entire European Union experiment — know it.

Even if Greece had a sudden, unpredictable surge in economic consumption which grew the nation’s GDP by double-digits, their problem is much the same as that for many European and Asian markets. And it’s not purely a financial problem as most people think; it’s actually a people problem.

That problem, of course, is bodies — young bodies, to be very specific. The baby boom that resulted after the cessation of fighting in WWII produced the largest generation in modern history, and it happened not just in the U.S. but in every developed nation in the world.

What that means in simple terms is that the world saw a burst of excitement and anticipation for the future resulting in more babies which meant more consumers and producers, which we’ll call ‘prosumers’. And when those prosumers came of age, began working and started families of their own, global economies exploded.

But, as with most things in economics, what goes up must eventually come down. And we’re now seeing the chickens from that boom come home to roost.

Because we’ve yet to discover the fountain of youth, those boomers began to age and finally have begun to age entirely out of the workforce. What that means is far less population productivity and, simultaneously, quite a bit more relative consumption, particularly in the realm of health. Older folks don’t necessarily eat much less but they do require a great deal more in health care. And that additional health care has real costs to society.

So while population productivity is plummeting as boomers continue to retire in droves, health care costs are skyrocketing. In the most basic economic terms, this means that developed nations around the world are slowly suffocating under the weight of their own demographics. And there is no way to kick that particular can down the road to magically correct this issue.

What makes the problem worse is that subsequent generations have had far fewer children than did the parents of the boomers. So, in short, fewer people born means fewer people producing and fewer taxes paid. All of this sets up an unavoidable collision course in places like Greece where the fertility rate is below the minimum replacement line.

So what will happen? Can the can get kicked one more time? Well, the European Union really has no choice but to print more money and continue to bail out Greece (and Spain, Italy and Ireland) because the alternative is collapse. But by printing money, there’s very little reason to expect currency to do anything other than inflate — perhaps even hyper-inflate. So the choice for leaders of the EU is stark: a quick, painful death by economic collapse or a slow, uncomfortable death by currency inflation.

Currency inflation is a terrible enemy for anyone with money. If you know that your political leadership is going to take actions to basically make your money worth less than it is now, do you just let your hard-earned savings be eroded? If your currency is losing value by such decisions, what would you do?

Do you have choices? Of course you do. You don’t have to keep your money invested where it will be eroded. You can flee that market to greener pastures elsewhere.

Where does the world look when seeking the greenest pastures? The U.S. of course. This global reality will continue to drive international investors to the U.S. stock market as the best safe haven for their money. And that is one more reason why I’m predicting the Dow will hit 30,000 in the next 24 months, give or take. It is a reality that defines a great wave of buyers investing in U.S. markets.

Now, remember what happened when the Greece story was dominating the news? Markets around the world became volatile. Investors became frightened as the press spun that a default of Greece could trigger another round of great recession. Investors wondered if they should flee to cash or even focus in on bear market trading vehicles. Markets shifted from somewhat stable to pretty volatile- strong gains followed by harsh falls followed by big rebounds… all in a matter of days or weeks.

Volatility feeds investor nervousness… even in the U.S. markets. Americans get uncomfortable when we see that the DOW is down a few hundred points on worries about Greece… or Brexit… or any other volatility-fueling event. We remember a record high 5-digit DOW falling all the way to a 4-digit DOW not so many years ago, and how that great fall significantly cut into our 401K & IRA nest eggs.

We do not want to suffer through that kind of pounding again. And that fear can make investors panic out of the markets. Other investors see the selling and they panic out. That can define short-term sellers who let their emotions- particularly fear- overwhelm them such that they panic and run to cash.

The clash of those 2 forces will make for fairly big swings in the markets in the next few years. One fear of the international buyers is pressing them to buy into the relative safety of U.S. markets. Another fear of domestic sellers is short-term worries that the markets will fall in spite of that wave of buying.

A smoothly rising or smoothly falling market is a market where almost everyone is betting on the same direction. As such, investing profitability potentials get squeezed. Imagine the payout on a horse race where there’s only one horse in the race. Everybody knows which horse is going to win in that race. So the profit potential in that race evaporates to nearly nothing.

Volatility emboldens bulls & bears to think their view is right and about to come to pass in a big way. And that opens up the opportunity to make much greater profits over short holding periods if one is on the right side of those trades. Indices like the DOW will rise & fall- sometimes dramatically- over periods as short as just hours or days.

While I maintain great confidence in my medium-term expectation of DOW 30K, I expect the path to that destination will have these bouts of dramatic, hand-wringing volatility. And I welcome it because my own approaches to harvesting profits from trading can make maximum gains whether stocks rise or fall.

In fact, volatility is a particularly powerful catalyst for bigger profit trades than anyone can realize if the DOW is just steadily moving up or down. The right buy or short… the right call option or put option purchases… and we grab profits in a few days or weeks that far exceed what we might make in many months just “holding” in a less-volatile market.

Do YOU know how to profit in both directions? Do you know how to take advantage of volatility so that it helps you make much more money than any kind of “buy & hold” strategy? Email me at Mike@MikeGaliga.com if you would like me to cover such topics in future editions of this column.

If you don’t know or are not so sure, this would definitely be the time for a quality refresher. That knowledge can help you make more ROI than you’ve ever made over the next few years and/or help you protect your wealth against market downturns instead of just taking the losses. Are you ready?

Lastly: I’m also interested in more topic suggestions you would like to see us cover in this column. Let us know what is on your mind and we’ll likely address it in timely, future articles. Again, just email anything you’d like to share with me to Mike@MikeGaliga.com.

Mike Galiga: The Dow Will Hit 30,000 Before 2020

Last week we saw the unlikely headline blazing across the airwaves that the Dow Jones Industrial Average had hit 20,000 for the first time in history. Soon after the record was broken there began a massive selloff of stocks leaving many to speculate about the future of the market and whether it was a flash in the pan. And unsurprisingly the naysayers jumped in front of the cameras to decry false flag confidence in a new White House run amok.

But there’s much, much more going on here than simply a market responding to the political intrigues du jour. That there was a selloff of stocks was nothing more than investors taking profits on the massive growth in stock prices. And there was plenty of profit to be had. This happens nearly every time we see a steep peak in the market. And of course the same thing happens in reverse when we see a massive downturn in prices: a buying freezing while stocks are “on sale.”

I have a bold prediction to make: the Dow will hit another massive record of 30,000 within 24-36 months. And here’s why. The fundamentals underlying the growth of the American market have far less to do with the change in administrations and quite a bit more to do with what’s happening in the global financial system. That Donald Trump’s policies appear to the average investor to portend growth in GDP is merely gasoline on the fire.

So what’s the fire? Take a look at what has been happening for several years and increasingly so in the last couple. China and other major players in the Asian sector are buying up American assets as fast as they can. Why is that? And investors in the Eurozone are doing the same thing. Meanwhile, foreign money is flooding into American funds to such a degree that fund managers are scrambling to find investment vehicles for those dollars in order to hit their required ROI numbers. All of it has a single explanation.

 

 

Both the Asian and European sectors are drowning in national debt and are on the brink of insolvency. The Chinese stock market dropped more than 40% just last year. And Japan is upside demographically and cannot manage its national debt. And with Brexit as the cherry on top, the near bankruptcy of Greece, Italy and Spain is threatening to drag down Germany and France beyond recovery. This means foreign investors are fleeing those markets for higher ground in the U.S.

That global reality more than any one factor is what’s driving the Dow and other indices up and up. And since there’s nothing on the horizon that might forestall the continued fall of the Asian and European markets, investors will continue to move money into the U.S. markets.

What this means is that money will continue to seek new investment opportunities in much the same way it did in the early to mid 2000s when low interest rates made debt very cheap. And those new investments will fuel additional speculation and growth in virtually every sector.

Between now and the mid-term elections, we should see very high peaks and relatively low valleys as stock prices continue to move toward record levels again and again. It will not be a straight line up to these records, as there will be volatile swings- especially as our new president and the Republican houses call for and drive significant change. As with all change, there will be big winners & big losers. Therein both bulls & bears should find quick-hit, BIG profit opportunities buying shares of stock or call options and selling stock short or buying put options. Those positioned for such volatility should do really well… even on the seemingly (market) down days.

Of course global instability — a major terrorist attack, for instance — could always threaten and delay the march to new records… and bring their own volatility into the markets. But global megatrends like this one are difficult to derail. And that means huge profits are in store, both on the rise and on the fall of the prices as we climb evermore toward DOW 30,000.

–Mike Galiga

Mike would love to hear from you, including the investing & economy topics on your mind right now (so he can address them in upcoming articles). Email your thoughts or questions directly to him at: mike@mikegaliga.com

Stock & options trader Michael Galiga’s trading expertise is built atop a confluence of unique life experiences: working with Sam Walton (yes, that Sam Walton), piloting Cessna turboprops, being a Major in the USAF Auxiliary and graduating law school with only $11.70 in hand. From humble beginnings to American dream successes… in bull, bear & flat markets… he’s seen- and done- it all. He’s cultivated his impressive stock & options-trading skills on a unique blend of fundamentals & technicals, plus a generous layer of the wisdom-driven art of trading to grow the wealth of his followers.