The Week Ahead 1/8/2018

Welcome to 2018. I hope you all had a good break and are ready to make some money in the new year. Last year was our first year and here are some facts. We have 202 subscribers to our blog. Mike, Mark, and I would like to thank you for your business.

Our Model Portfolio of strategic option trades made 17.4% annualized return for 2017.

Mark has a great write up on what to look out for in 2018. Mark Guthner explains here what our thoughts are for 2018.

Bitcoin Update:

I use the word bitcoin as a catch-all for all cryptocurrencies out there. Please remember to separate the actual digital currency from the blockchain technology. Bitcoin prices surged to almost $20,000.00 a coin last year. Is it a bubble? Is it a fad? Only time will tell. I have some bitcoin that I mined years ago (no I did not lose my wallet). I also played the dollar cost average method of investing over the past few years to stay involved. To know about it, you had to have some skin in the game. So, when the run-up happened, I was excited. People kept saying to sell, but the old saying goes let your winners run, and that is what I did. I made these decisions when Brian Kelly launched his book in 2014 when he and I discussed the blockchain technology. I timed the bitcoin market well. Was l lucky? I probably, but I want to say I saw something of value in this digital coin, so I decided to mine some, buy some and invest in some. I guess this is what we all do. Find the value and buy.

I enjoyed A. Damodaran, NYU Stern Professor, an expert in valuation.  He describes that Bitcoin is not an income generating asset that can be valued, but a currency that can only be priced.  Think about that when someone says the value of a bitcoin has gone up today.


Here are two perspectives on Bitcoin.

Charlie Munger was recently asked about Bitcoin and this is what he said.

“I think it is perfectly asinine to even pause to think about them… It’s bad people, crazy bubble, bad idea, luring people into the concept of easy wealth without much insight or work. That’s the last thing on Earth you should think about… There’s just a whole lot of things that aren’t going to work for you. Figure out what they are and avoid them like the plague. And one of them is bitcoin. … It is total insanity.”

James Altucher is a self-proclaimed expert in the Bitcoin field and recently on CNBC, he pointed out some unique predictions.

Pointing to a demand-supply imbalance, Altucher predicts that bitcoin will top $1,000,000 per coin.

“There’s $200 billion in cryptocurrencies out there and over $200 trillion in demand for money — that’s the amount of paper currency and gold bullion in the world,” he said.

“This is the greatest tectonic shift in money and wealth that we will see in our lifetimes,” he said.

These are two extreme opinions, and even more in between.

What to Watch for this Week

As we kick off the first full trading week for the new year, inflation will be on the top of everyone’s mind.  The PPI and the CPI numbers will get some attention this week and throughout the year especially if the numbers show that inflation is rising.

Last week each market made a fresh new high, on better volume, after taking a break for the Christmas and New Year holiday.  The SPX and SPY option volume makes up the most option volume in the options space.  There is 28% more volume last week than a year ago.  Impressive.  We will see if this continues this next week or if the inflation fear will tame the market’s bullishness.


Key Factors

  • Three-fourths of the increase in the index for final demand was attributed to a 1.0% increase in the prices for final demand goods, which was led mostly by a 15.8% jump in gasoline prices
  • On a year-over-year basis, the index for final demand was up 3.1% year-over-year in November, marking the largest 12-month advance since January 2012.
  • Core PPI was up 2.4% year-over-year, unchanged from October.

Big Picture

  • The key takeaway from the PPI report is that producer prices are rising and will create some profit margin pressures if the higher prices are not passed through to consumers.


Key Factors

  • The energy index increased 3.9% and accounted for about three-fourths of the increase in total CPI.
  • A 0.2% increase in the shelter index helped push up core CPI, but declines in the indexes for apparel, airline fares, and household furnishings helped keep core price pressures in check.
  • On a year-over-year basis, total CPI was up 2.2%, versus 2.0% for the 12 months ending in October. Core CPI, however, decelerated to 1.7% from 1.8% for the 12 months ending in October.

Big Picture

  • The key takeaway from the report is that it didn’t signal any alarming consumer inflation pressures, which will leave market participants predisposed to think that the Federal Reserve is apt to continue following a gradual tightening path.

Global Spotlight

It’s Time to Talk. South Korea deflated the U.S. pressure campaign on North Korea last week by getting a dialogue on the books with Pyongyang for Jan 9. In exchange for South Korea putting off military exercises with the United States, North Korea is expected to give its nuclear testing a break during the February Winter Olympics in South Korea.

Pakistan, Between a Rock and a Hard Place. The United States made good on its threats against Pakistan last week by suspending a combined $1.1 billion in security-related assistance until Islamabad demonstrates decisive action against the Taliban and Haqqani network militants operating on its soil. Pakistan may engage in more intelligence sharing with Washington against select militants, but aid cuts alone are not going to fundamentally shift Pakistan’s strategy of employing militant proxies.

A Tense Time for Tehran. A spate of protests that broke out in mostly rural areas of Iran is already losing steam.

The Challenge From Eastern Europe. The dispute between the EU Commission and Poland is creating the risk of a deeper divide between Eastern and Western members of the European Union.

Economic Calendar

Here is a list of the U.S. economic events happenning this week.


Last Weeks Numbers

Review Last weeks numbers here.