July 7, 2020
The news media are back to panicking about COVID-19 following the July 4 holiday…
The message is clear: Thousands of folks massed together in city streets protesting is fine. But how dare you picnic outside with your family and friends to watch fireworks and celebrate America.
That’s why we watched a recent video message from American Consequences feature contributor Dr. David Eifrig with interest…
He gave his expert medical opinion on what’s truly behind the surge in cases. (And it’s not just more testing!) Plus, he shared some news on an investment that’s shrugging off COVID-19 and crushing it with returns as much as 400% higher than before the pandemic hit.
Then, read on for an important message about a trade that everyone should be making today. In fact, I personally used this type of trade in the depths of the sell-off this spring to collect thousands of dollars in cash.
The Trade Everyone Should Be Making TODAY
By Dr. David Eifrig
It was supposed to be the collapse of the modern world as we know it…
In the years and months leading up to the turn of the millennium, lots of folks thought computer systems across the globe would crash, leaving much of the world in shambles. Banking systems would collapse… Government systems would malfunction… there would be large-scale blackouts… infrastructure damage… you name it.
Folks were scared. This widespread panic became known as Y2K, short for “the year 2000.”
You see, many computer programs only allowed a two-digit year format to minimize the use of computer memory. (They would use “99” instead of “1999.”) As a result, there was a lot of concern that computers would be unable to operate when the date changed from “99” to “00.”
But it turns out, as soon as the calendar flipped to 2000, there were minimal issues.
Some think the panic was overdone. They think the change to 2000 wouldn’t have caused many problems anyway… Others think it was the behind-the-scenes efforts of the government and other businesses that corrected the bug in advance.
Either way, there was a lot of panic across the country. Folks were so scared about a collapse in the banking system – and any other doomsday scenario they could imagine – that they started to hoard cash. And given the possible outcomes, cash was a safe place for most people.
We’re in a slightly similar position today…
The market has been rallying since its massive sell-off this spring, but folks are still scared.
They don’t know what’s going to happen with the COVID-19 virus. They don’t know how long parts of the economy will be shut down. And they don’t know the lasting effects from the shutdown.
As a result, they’ve felt safer hoarding cash.
The chart below shows the weekly changes in “currency in circulation,” which measures paper currency and coin held both by the public and in banks. There has only been one time over the past three decades when the need for cash has been greater than it was at the end of March… Y2K.
As you likely know, I’ve been an advocate of holding cash for many months now. I’m glad to see that people are finding safety in cash. Because the truth is… there’s still a lot that can go wrong today. Many companies are still at risk of bankruptcy.
We’ve seen the market rally ferociously over the past couple months, but don’t think that it’s time to go “all-in” today. The market is pricing in a very quick recovery… It’s currently not too far off its pre-coronavirus highs. Any setback to the economy’s recovery could send stocks lower in a hurry.
So what should you do now?
How to Make the Most of Your Cash
Many of you probably have a good chunk of your portfolios sitting in cash. And it’s safe in cash. But it’s just sitting there… earning nothing.
Many investors want to know when the time to put that money back to work and buy back into the market will be.
Stocks that you love – blue-chip stocks like Berkshire Hathaway (BRK-B), Coca-Cola (KO), and Disney (DIS) – are trading for 15% to 25% less than they were just a couple months ago. They look like bargains.
But you need to understand that they can still fall from here, along with the rest of the market.
While you could buy today and hold them through the drawdowns the market may have (at the very least, through a very choppy market – and I think things will be choppy for a while), I have a better way to make the most of your cash today.
I’ll describe the trade to you. And I’ll use a company that I love and that can be a cornerstone for any portfolio… Berkshire Hathaway.
As I write, Berkshire trades for about $180 a share. It’s down 22% from its February high.
A 22% discount on Berkshire sounds like a great deal… But it’s possible that it could easily fall 10%, 15%, even another 20% more from here if we see more of the economy close again. So you may be hesitant to buy…
Here’s what I think you should do… Tell your broker that you are willing to buy 100 shares of Berkshire for $165 a share anytime over the next two months. (And $165 is 8% lower than where Berkshire is trading for now, which is a great deal… remember shares are already down 22%.) All you have to do is set aside the cash to show your broker you can afford to buy shares.
And here’s the best part… Because you agreed to potentially buy shares of Berkshire for 8% less than they are trading for now, you’ll get paid $340 today.
And no matter what happens to the price of Berkshire, you’ll get to keep that $340.
Seriously, there’s no fine print.
So the deal is that you’ll get paid $340 today all because you agreed to potentially buy someone else’s shares of Berkshire from them at any point over the next two months… and for 8% lower than what they are worth now.
You Get Paid, No Matter What
Let’s go over all the outcomes in this trade so there’s no confusion…
Say Berkshire gets crushed because of a resurgence of the coronavirus. Shares fall to $163 – a drop of 9.4%. In this case, you’d have to make good on your promise and buy shares for $165 a share. That’s a loss of $2 ($163 – $165). On 100 shares, that’s a $200 loss.
But remember, you earned $340 at the beginning of the trade. So even though the stock fell another 9.4%, you still made $140. And you now own Berkshire, a blue-chip stock, at a ridiculously cheap price. Over the next few years, I’m sure you’ll be a happy and wealthy shareholder.
Meanwhile, regular shareholders who simply bought Berkshire and held would have lost $1,700 on 100 shares.
Now let’s talk about what will happen if shares fall just a little, stay flat, or even rise.
It’s simple… You’ll keep the $340 that you received at the beginning of the trade and walk away. That’s the end of the trade. You’re not on the hook for anything.
You just earned $340, and the worst-case scenario of the trade was that you had to buy shares of Berkshire for 8% less than what they are trading for now. And if you do this trade on companies that you would love to own today, there’s no way you can lose.
This type of strategy is a great way to not only collect big cash payments, adding some much-needed income to your portfolio, but it also provides a way to potentially buy shares of your favorite businesses at a huge discount.
You won’t find this kind of downside protection anywhere else.
Why Now Is the Perfect Time to Learn This Trade
There are very few times in history when this special trading strategy works so incredibly well, but today is one of them…
And that’s because of the record amounts of fear happening today.
My team and I track fear by looking at the CBOE Volatility Index (“VIX”). The VIX measures the expected volatility in the S&P 500 Index. As you can see, this “fear index” has hit peaks even greater than the 2008 to 2009 financial crisis…
This is important because when investors are fearful, they are willing to pay for portfolio protection. Specifically, they pay up for option protection.
Right now, options are extremely expensive… And that makes it the perfect time to sell them.
By selling options, we get to collect massive payments upfront and the only risk we take is the potential obligation to buy stocks that we want to own anyway – for much less than they are worth today.
We can basically take advantage of the extreme amounts of fear in the market.
But this excessive level of fear won’t last forever… That’s why I think it’s important you take advantage of these trading opportunities today.
Recently in my Retirement Trader service, I showed readers how to earn $650 and $385 by agreeing to buy two stalwarts with 22% and 20% downside protection, respectively. The strategy is simple to learn and anyone can use it.
Because of the rare opportunity in the markets, we are offering a reduced price to join Retirement Trader for a limited time only. Even though it’s scary to put your money back into the market, you won’t lose a night’s sleep with this strategy…
Now here are some of the stories we’re reading…
A $10 Trillion Rally Hinges on Earnings Nobody Has a Clue About
Stocks are coming off their best quarter in 22 years, with valuations by some measures the most expensive in two decades. Add to that: earnings estimates proffered by analysts are even more speculative this time around, after 80% of companies refused to provide guidance over the last three months.
Case growth outpacing testing in coronavirus hotspots
The U.S. doesn’t yet know what it looks like when a pandemic rages on relatively unchecked after the health system has become overwhelmed. It may be about to find out.
239 Experts With One Big Claim: The Coronavirus Is Airborne
The W.H.O. has resisted mounting evidence that viral particles floating indoors are infectious, some scientists say. The agency maintains the research is still inconclusive.
Global equities will be roughly unchanged from their current position this time next year as bullish and bearish forces cancel each other out, according to Citi strategists.
And let us know what you’re reading at [email protected].
Publisher, American Consequences
With P.J. O’Rourke and the Editorial Staff
July 7, 2020