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Trading the markets in phony environment

Many times again and again investors seek the way how to protect their portfolios and avoid losses when markets tumble.

Many investors try to balance their investing strategy between safety and returns. An old battle going on again and again.

I decided to combine two strategies for this purpose. One aggressive strategy – trading options and the second conservative strategy – dividend growth investing.

The first one is supposed to make me money – a lot of money, the second should provide protection. Thus my plan is to make money and invest them into dividend growth stocks and sometimes to a growth stocks as a power play, such as my recent purchase of Alibaba (BABA).

But what to do when you know that the markets are rigged by the government and its involvement? The crush of the markets is imminent, but no one knows when that actually happen. We know, that the US debt is unsustainable and that interest rates must stay low in order for the US to pay it back, otherwise the US would collapse.

Do you want to believe all modern economists playing the numbers to make the US economy look better than it really is?

According to Paul Singer an Elliott Management Corp. hedge fund manager:

“Nobody can predict how long governments can get away with fake growth, fake money, fake jobs, fake financial stability, fake inflation numbers and fake income growth… When confidence is lost, that loss can be severe, sudden and simultaneous across a number of markets and sectors.”

John Crudele writes in his post “US economic growth is all an illusion”:

  • Fake growth: The US economy is growing moderately. That’s pretty much certain — but it’s not growing as fast as the government would have you believe. The Commerce Department recently pegged third-quarter growth at a 3.5 percent annual rate — but earlier this week, some real numbers came out. Our exports declined in the third quarter and construction spending was weak. So that 3.5 percent guess will probably be revised down to a 2.9 percent annual rate on those numbers alone. But Singer is probably also referring to the artificially low inflation number that Commerce uses in its GDP calculations. If inflation were measured correctly, GDP growth for all years might be 30 percent lower than reported.
  • Fake money: Singer is referring to the $4 trillion in dough the Federal Reserve printed under quantitative easing that has resulted in millions of regular folks not getting much interest income and, therefore, they’re cutting back spending. That’s why the economy is weak.
  • Fake jobs: The Labor Department adds hundreds of thousands of jobs a year to its count for positions it thinks, but can’t prove, are being created by new companies. This practice, which has gone on for decades, needs to be investigated. On Friday, Labor is expected to report job growth of 230,000 for October. That figure will be boosted by another heaping serving of job guesstimates.
  • Fake financial stability: The artificially low interest rates are not only propping up banks and Wall Street profits but also making the US government’s financial position look better than reality. If Washington had to pay market rates for the money it borrows, the US budget deficit and debt levels — already excessive — would be worse.
  • Fake inflation numbers: Commerce doesn’t only play tricks with the inflation number used to calculate the GDP. It also tamps down the consumer price index — and cheats Social Security recipients and others — through academically approved methods like geometric weighting and hedonics.

I wouldn’t express better what I feel about our government economic tools and the reality. And it appears that I am not alone who feels the same way.

So what is ahead of us? I am afraid, it would be more manipulation and more economic experiments which burst at some point in the future.

It is today’s reality and markets react to it. Manipulated by artificial economic measures when our government is trying to push the pendulum of equilibrium to one side just to look better.

I am not only a citizen of this country, but also try to be a responsible investor. I do not want and never had relied on any governmental support and it is the way I want it in the future.

Unlike 47% of my fellow citizens who chose an easier way of dependency on government and stay on welfare, I decided to fight. I know I am well behind the standard savings curve and that’s why I chose the aggressive part of investing (or better say trading) as well.

I am learning the hard way to become a successful trader to make up the difference between my savings and needs in my retirement.

I believe, trading is my only chance to make enough money now rather than waiting 20 more years for my dividend portfolio to kick in.

I am no longer in my 20s or 30s where you have enough time to wait and if you really started early, you have a great chance to be retired by 40. I am way behind this level and already tired. Yes, I am tired. Tired of work, chores, and dependency. Is it a middle age crisis I am experiencing? Maybe.

But I know many traders who went the same journey, learned trading stocks and options, and today they enjoy their life, travel, and are no longer dependent – dependent on work, their boss, their salary, and bills coming in every month.

Everyday, I imagine a situation where I wake up in the morning, spend a few hours in front of the computer reviewing my trades and then go to enjoy my life traveling or just staying home and reading a book.

It sounds easy, but in this market environment, it is a difficult task.

How do you protect your investments to make sure they always bring you the most desired cash?

As a dividend investor it is a very easy task. Pick a high quality blue chip stocks paying 3% or more in dividends, rising them regularly by about a same rate (or more) and stick to them forever. You do not have to worry about their current market value.

As a trader the answer is not that easy. I only have one advice. Stay small if you have a small account and keep a lot of free cash available for adjustments. When the markets turn against you, you will need it to reverse the trade or adjust it.

It was the case of my two recent bear call spreads I has against SPX. Originally, I had an Iron Condor against SPX 2020/2015 calls and 1890/1885 puts. Although I sold the Condor way beyond the 1st standard deviation, thanks to manipulation the call side of the Condor got breached. While the put side expired, I had to roll my calls up and away in time.

I had a same situation with my second bear call spread 2010/2015 which also got breached and I had to roll it away.

Both rolls needed additional margin. Without enough cash in my account, this wouldn’t be possible whatsoever and I would be closing with a loss due to lack of cash.

Keeping enough cash in reserves allows me to respond to the market’s moves and strive to be on the right side of the market.

How do you manage your portfolio against sudden plummets?

2 responses to “Trading the markets in phony environment”

  1. DivHut says:

    Your article makes our current financial world sounds very scary. And it is. There i no denying that fact. However, throughout history there have always been tragedies, wars, famine, displacement, depressions and recessions and somehow we always manage to come out on the other side. I guess the key is to be diverse and own stocks, real estate, gold, silver just in case things really hit the fan. Even people in their 40s or 50s can reap the benefits of dividend growth investing. Odd are you’ll be around to see age 70 or 80 or 90+. That would still give you decades of compounding time to utilize later in life. I understand you are looking to enjoy your life now but sometimes delayed gratification can be just as rewarding.

    • Martin says:

      DivHut, yes, I agree with you. My article wasn’t to complain or predict a doom, but to get ready for a volatile environment in the markets with unpredictable and contrary reactions based on hypes or fear more than anytime before. In many cases today’s market defies some (if not all) rules we saw working before. Thanks for stopping by.

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