Standard monthly options will expire on Friday. We have ten trade suggestions that are set to expire. Seven of those trades were winners, and three were losers. Net-net, those suggestions produced a profit of $1,035 if you did one lot for each idea.
We do not need to tell you, but the price of risk assets is becoming more volatile as people try to understand what is happening on the inflation front. Mark was a teenager in the 1970s and remembers that period. Inflation took off in 1970 because of the guns and butter policies of the government. The politicians thought they could simultaneously introduce and expand the welfare state and prosecute a war. The laws of economics disagreed, and inflation as high as 15% followed.
Inflation hit 6% in 1970, and the government panicked, instituting wage and price controls. This started to cause shortages because people would not make and sell things at a loss. So they did not. This reduced the reported inflation number, and the government thought they won the battle, so they took off the controls. However, the government kept running deficits and borrowed money to do it. The Fed also stepped in to buy some of that debt, so the root cause of inflation was still in place and running amuck. So once the wage and price controls were lifted, everyone raised their prices, and people demanded bigger paychecks, so price inflation skyrocketed. It was not until 1982 before price inflation broke below 6%. From 1985, inflation averaged around 2.5%.
The government is doing the same thing now as they did then. Blame everyone but themselves for higher prices. Unless and until the government takes its medicine, inflation will remain high. This will continue to push interest rates up and keep small and big businesses alike off balance resulting in lower stock prices.
Milton Friedman understood the relationship between money and inflation, as did Mises and Hyack. He received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory, and the complexity of stabilization policy. The following is a speech he did discussing price inflation, which we think is worth watching.
We see many people denouncing the Monetary Theory of the economy. These folks push something called Modern Monetary Theory (MMT). There is nothing modern about it. It is a monetary policy promoted by Karl Marx. It has been practiced in every third-world country to exist. At its core, it suggests there is a free lunch. It argues the government can create money and spend it, making everyone will be better off. It has a perfect record. Everyone becomes worse off, and those in government remain in office a few more years while they cover up the government’s state of bankruptcy until they have to flee in disgrace. Mark has seen this first hand. He was in Indonesia from 1998 to 2000 when the rupiah went from 1,700/dollar to 20,000, for a 92% loss in purchasing power. History is clear, proving the laws of economics. In big economies, printing money causes inflation. In developing economies, printing money causes currency collapse and hyperinflation. We hope the government and the fed get their act together soon.
We have ten trades expiring on Friday. They are listed below. Most of them worked, and a few did not.
We suggest letting the UUP, DHI, AMD, and ADP trades expire worthlessly. We suggest letting the CLF stock get assigned. Cleveland Cliffs is a super cheap stock, making heaps of money. Energy is much cheaper here in the US vs. Europe, so they will continue to have a cost advantage for the intermediate term. Once assigned, we suggest writing an October 21, $16 strike call against the stock. The option is currently trading at $1.08. The stock is only $0.65 in the money, so if it pops and the stock does not get assigned, we may suggest selling another cash-covered put.
We suggest closing out the TWLO and the DFS trades before expiration. The FXE, BHP, and HCA trades are sitting at the money. We suggest closing them out. However, if you are an active investor who monitors their trades all day, keep a close eye on them. They may expire worthlessly. That said, we do not suggest getting assigned on these issues.
