Bombs Are Falling
We were watching Captain Marvel last night on Disney+. Of course, my son's seen it, so he was looking at his phone every five seconds. So he was the one who said, "Iran's shooting missiles at U.S. bases in Iraq..."
We panic-switch the TV to CNN and discover that the reality is not as dire as it first sounded. There were no immediate reports of casualties. Was it possible that Iran executed one of those retaliations that makes a statement but doesn't really escalate things?
I don't know. I'm surprised at such bold and direct action. As I wrote Monday, I didn't think Iran was keen to ratchet up the tension.
I checked in on futures around 10 p.m. — Dow Industrials were looking at a loss of less than 1% and were already up off their lows. Weird, I thought...
Then it was time for a Twitter quote. You see, I had just put the first trade of 2020 to Real Income Traders on Monday: call options on Twitter (NYSE: TWTR). I've been watching the stock for several weeks. It's been forming a nice base since its last earnings debacle, and I didn't want my readers to miss the pop when it came...
Twitter was up nicely yesterday — about $1. The calls we bought for $40 a pop traded as high as $90. Gotta love it when a plan comes together. But then, yeah, last night...
It's Getting Weird Out There
I watched as the latest ADP payroll data hit the wires around 8:30 a.m. this morning. It was a really good number: 202K vs. expectations of 150K. Dow Futures launched into the green, suggesting gains of around 35 when stocks opened for trading at 9:30 a.m.
So, life goes on. I get it. In the long run, better-than-expected job growth will probably be a bigger day-to-day factor for the average American than a tit-for-tat squabble with Iran will be. But does that mean we just ignore the explosions and buy stocks?
I have some thoughts...
I got back from Mexico with a horrible fever last Thursday. I was in bed until Sunday. But it didn't take me long to figure out what was what and that the markets weren't going to be plummeting on the whole war with Iran thing.
Now, this wasn't an opinion. I didn't weigh the pros and cons of war vs. investing profits and conclude that making money is better than armed conflict (though that should be self-evident)...
I didn't call the Fed, or ask some hedge fund guys what they think.
I simply took a poll of a few million investors to get a sense of which way the wind was blowing.
"Oh sure," you might be thinking. "I wish I could just ask a bunch of wealthy influential investors what they're going to do with their money when stuff gets weird..."
Well, the fact is, you can ask wealthy influential investors what they're doing with their money. If you want to know if investors are scared, you can ask oil prices, you can ask bonds (prices and yields, please), and you can ask gold.
The three amigos will tell you exactly what they think, and you can plan accordingly...
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If the Middle East is on fire, oil prices go higher. Oil rallied a little, and traders sold into it. If there was fear, that wouldn't happen.
Remember: Oil is a big market. Anybody that ships (airlines, trucks, diesel trains, etc.) has exposure to oil prices. If it looks like prices are going higher, these types of companies will be quick to lock supply at a price they like via crude oil futures contracts. They didn't jump, and that's a good sign that business would go on...
Bond prices jumped, and traders sold into it. The bond market is a good bit bigger than the stock market. It's insurance companies and pension funds and money market funds and sovereign funds and deposit banks who all live and die by a half-percent of profit a year. Make your 2.5%, and the claims get covered and the checks get cashed. Make 2% or less, and there's a problem. Those aren't exact numbers, but you get the idea. If there are real problems, bond prices make real moves. They didn't...
A lot of people will tell you that the gold market has the final say. That's it's the one to watch. Fact is, it is way smaller than oil or bonds. Central banks don't operate in gold, and neither do pension funds. Gold is a retail market. It is 90% sentiment, and — surprise!!!!! — it's rallying! These are the investors/traders that won't check oil and bonds. They're trading in their gut instinct, and they're gonna get steamrolled.
Keep it Simple
I hear from a lot of individual investors. And I can tell you: the amount of money that sits out there in stock-land unclaimed and unloved by people for whom it could make a huge difference is incredible...
Literally millions of American stroll past piles of stock market money every day because "the market's a Fed-induced bubble" or "those share buybacks are fake profit news" or "that stock is probably a scam" or "the president is an a-hole."
It sounds funny, but you and I both know people who aren't investing at all because they don't like the president.
Will stocks sell off at some point? Sure, they will. And Murphy's Law says that any sell-off is more likely to happen right after you've put money in.
Don't sweat the small stuff...
Great companies get better at selling great products over time. That means costs fall and profits increase. Growing populations and higher employment rates mean more people are buying those products. Again, more revenue and higher profits. A little inflation every year means you get a raise and prices increase. Yep, more revenue and higher profits.
Don't overthink it. Just make the money.
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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