Tally-Ho Tackle Traders,

Last week we tried an exercise in “Deep Thinking” wherein I shared some common viewpoints experienced during my time in Europe. Maybe they made sense, maybe they did not. The point of last week’s blog, however, was to not only encourage the reader to open ones minds to different perspectives, but also to encourage the opening of one’s mind to “the right impression of things”. Rather than being the willing consumers of all things the media puts out, maybe it’s time (as Michael Kleinhenz may agree) we “be good, do good, and know good” things. (Love your work by the way, Kleiny).

This comes at the cost of being hard on your personal opinions. It is important to think critically, be intellectually rigorous and identify bias’, prejudices, and privilege. As Edward Wallis Hoch once said: “there is so much good in the worst of us, and so much bad in the best of us, that it hardly behooves any of us to talk about {the rest} of us.”. Its in this way that most of society’s failures are kept alive by the failure to acknowledge nuances. We tend to uphold false dichotomies and try to argue one point by using two entirely different sets of assumptions. All in all, the summation of last week’s blog was a call to thoroughly evaluate how we form perspective. Without such analysis there may be consequences to our hubris.

Environmental Hedging Week 18: Franco Coria of Argentina

This week, however, we will discuss “Taxes and Commonsense” as well as reengage the marketplace.

Also this week we have a special guest on board, Franco Coria from Argentina. Franco came to Utah this last weekend to visit, to do a bit of work on market strategy, and, basically, investigate the haunts of my R.V.. We “glamped” on Antelope Island in the Great Salt Lake—we talked shop, talked life, and did so beside the campfire, I.P.A.(s) in hand. We also got a bit of hiking in, saw a portion of the annual Utah buffalo roundup and, well, had buffalo’s in our camp area. It was cool!

Franco is a Legacy Education & Tackle student and has been live-trading since April. He is a mentor student of Tim Justice and, most importantly, a fine addition to this thing called humanity. He’s a great guy with a great story and is on his way to becoming an accomplished trader. As he continues his journey I anticipate great things from him and look forward to being part of his development. Check him out:

As viewed, Franco coined the term “Buffalo Market” and I’m giving credit where credit is due. That and I will willingly admit my love of the satire behind it. I do not think he is missing the mark, either. It is spot on, actually. I mean, in some schools of thought a Buffalo could be contrived as part bull, part bear…maybe part camel. Who knows… But I do know I am going to start using it the phrase to describe a neutral market. Anyways, Franco is a excellent student and a strong member of our community. We are very lucky to have him and you will be seeing more of this guy. I have a good feeling about Franco’s future.

In other news, I am not sure if your remember a blog I did back in July of 2017, featuring a tackle student named Josh Van Alstyne (https://tackletrading.com/environmental-hedging-josh-alstyne/)… Anyways, Josh is an ex-Green Beret, an accomplished trader, and a member of the Tackle community.

Now, if you remember the blog you would remember his interview and that a large part of it was call to help an organization called nooneleft.org, which is an organization dedicated to ex-filtrating Afghan interpreters to the United States in return for their services to American Special Forces units during the war…

Well, good news, folks…(drum roll)… Josh’s interpreter received his visa and has arrived in the United States with his family!!! For those of you who donated money (you know who you are) you did right and job well done. In Josh’s own words:

“I want to to send out a very emphatic thank you and appreciation to everyone who helped out with his fundraiser. He has a small family and it will go along way to helping them establish themselves here. I have many reasons to be grateful to him for his hard work during a very dangerous time period, and can’t express how glad I am that he and his family are out of harms way and can begin a new life in a land with so many opportunities.”

Really cool stuff ladies and germs. I hope some of you were apart of this, and, I further hope some of that money came from the Oil Industry. If so, mention your contribution in the comment section. No need to give amounts, just confirmation you used Environmental Hedging as prescribed.

But to be honest, we haven’t crossed the finish line quite yet, there is more to come and hope further contributions will help him and his family acclimatize to life in America while employment is being sought out. After that, mission accomplished.

Robin Hoods: 

So the last few weeks have been mixed in the market place. Naturally, it is earnings season and things are moving. Overall it looks like earnings will be positive for Q3 and Wall St.’s strong October suggests happy holidays ahead—and potentially beyond. As for our selections in Environmental Hedging we have had some winners in Q3, (FSLR & X), and we have had one loser thus far, (AMD)… FCX had a “buffaloish” turn out and there are more to announcements to come—i.e., TSLA reports on the 1st and SPWR will be on the 2nd of November. TSLA’s announcement bears substantial downside risk and projections on SPWR are mixed. Stay frosty and don’t loose money. 

AMD—Advanced Micro Dynamics 

Wait: This one got beat up, bookoo. The actual earnings report was decent and beat Wall St. expectations, however, Wall St. sold and sent the stock into bearish territory. Our in-house technician Tyler Craig has AMD settling in and around 9-11 dollars per share.

As of Tuesday the 31st, AMD had its first positive day since earnings and settled just below the $11 support level. Strangles or Collar Trades may be appropriate, or more so were appropriate, and for now I’d say give it a wait. As Tyler said in his submission, “with great pain comes great opportunity”. I wouldn’t be shocked if AMD consolidated, maybe with a down scare or two, then headed back north. We shall see.

FCX—Freeport McMohran

Naked Puts: FCX is doing what it has been doing for sometime—Buffalo trend, grazing between 14 and 15.50 per share. Currently the stock is at 14 and is in a good position for naked puts. Analysts favor the stock and a recent upgrade has been submitted.

X—United States Steel.

Naked Puts: I just watched X’s earnings report and the outlook was beaten. Shares jumped 8% as a result. However, this has happened in the past and resulted with all gains given right back a day or two after earnings. This was the case for Q2… Give it a few days and the chance may arise for naked puts. Do not jump the gun since X has a large A.T.R., however. We can be efficient with our entrance if we remain patient.

Targeted Stock:

FSLR—First Solar

Long Stock: First Solar had a fine earnings show, however, gave some gains back on Monday, settling on the new formed support. I am uncovered and view the pull back as a bullish retracement, or, potentially, the mere capturing of gains by short-term investors.

TSLA—Tesla Motors.

Earnings Upcoming: If you’re an owner of TSLA go ahead and cover your shares or potentially collar trade the event. Or sell on Wednesday and wait to buy back in at a later date. Since TSLA is notorious for its volatility in price action, and that it is a high value stock I’d be a bit cautious with this one. If you have an option strategy on TSLA, get out before earnings. It’s not worth it. I have a negative take on earnings this go around and anticipate TSLA dropping in and around the $300 per share level. I am, however, not afraid of getting back into TSLA after it has settled.

SPWR—Sun Power

Earnings Upcoming: I am long stock on SPWR. Since earnings is on the second I am going to be selling my shares, and getting back in at a later date. Reports on SWPR are mixed and I do not anticipate as strong of a showing as FSLR. But then again, the last time there was mixed earnings reports on SPWR there was a surprise profit to be had. Let’s see what happens.

Environmental Hedging Week 18: Taxes and Commonsense 

For the lion’s share of its history the market has been a metric of general confidence, of fear, and quantitative value within the economy. Indeed this attempt is an attempt to measure value, but value is a muddled concept if and when people cease to understand why something is of value. Consider fiat currency as a fair example…Currency has functional value because we can buy and sell things with it. However, we can only buy and sell things with currency because we first believe currency represents value beyond the paper which it is printed on.

However, this can all come raveling apart and all it takes an erosion in confidence of the instrument of currency as an instrument of value. For example in the summer of 71’ this belief was shaken to such a level that Europeans, for the first time since WWII, would not accept dollars as payment from American tourists. To give a bit of context: what was taking place at the time was the death of the Gold Standard and it was commonly believed this would have a negative affect the dollar’s overall value. Since you can no longer exchange dollars for gold, people wondered what value the dollar had beyond its convertibility to gold. Thus, belief in value was shaken and for a period people ran away from the dollar, particularly in Europe. Which was commonsensical. But when the decision was finalized to “float” the dollar against Gold and the phase out began, the market jumped 4%—which made little sense. Even the great hedge fund manager Ray Dalio was dumbfounded. The market in many respects can be counter intuitive and value things that society may not value, as was the case in the dollar scare of 71’. Commonsense would have it that the removal of the gold standard would have harmed the dollar’s bottom line. However, in hindsight, what investors learned in 71’ was that the market valued capital expansion over a gold collateral system. In other words it valued debt and inflation over a non-inflationary system of collateral.

In the contemporary market we are seeing all sorts of things which are akin to this form of logic.

Tax reform is one such example. On one level, there is a need to lower corporate taxes, such that companies like Apple, which hold nearly 268 million in cash in offshore reserves, would be incentivized to move their money back to the United States, wherein said money would stimulate infrastructure development, production, and further investment. There is also a need for this money to be taxed within our own system and not the system of another nation… The market has been reacting positively to the possibility of this taking place come mid November.

On another level, there is the question of the 1% and by most standards this is problem #1-#10. The top echelon of the 1% is beyond wealthy, like the .02% of that 1%. They are so wealthy in fact they are able to move society if they choose to dangle their carrot. They can manipulate and hoard and at the same time have the potential to do a greater good for society than government may be able to. It it entirely dependent on the content of their character and size of their hearts, however. You see, civic society is supposed to have checks and balances against this. Not all wealthy people are good people and not all wealthy people are bad people, but to avoid this risk of the bad over the good there are typically progressive tax programs in place to mitigate such risk. Thus tax-reform that levels this playing field is, at the end of the day, the best route.

The market, as mentioned earlier has had a positive reaction to idea of corporate tax breaks. However, bundled in our tax reform are breaks for this .02% of the market. Every time the GOP mentions a “phase-in” of corporate reform the market drops, implying that there is a carrot being dangled. The real risk is if corporate reform does not happen or run smoothly and the super wealthy simply get a massive tax break. That would be the Kansas-City Shuffle here.

At the end of the day, when everything is said and done, tax reform will be explicit of our values in the United States. Today, for example, the globalized marketplace mostly values outsourcing, automation, and efficiency models. Which are better known as the offshoring of labor, factory robotics, and surplus labor. The average person, however, values something entirely different. Most people value three square meals a day, a roof over their head, and enough savings to accommodate children and retirement—of which they will willingly work for other people the majority of their lives in order to obtain.

If people are not extended such opportunity then either the values of people change or people become more serious about changing the values of that which controls their food sources, shelter, and capital. The values of people, in the context of this blog, more so comes down to how they will be expressed in tax reform. If they do not coincide with the average person’s desire to live in peace and have adequate standards of living then people will seek to change that, by all means possible. Which may include placing questionable wagers in order to “bring jobs back”, “lessen middle-class tax burdens” and “share the wealth”.

Which is where the recent call for economic nationalism is derived. Since people have standards of living, when the definition of what is “standard” is threatened, people seek any and all means to curb such threats. In our case that is, largely, curbing outsourcing and factory automation. That, and confronting the concentration of wealth. The implementation of tax cuts to the top of the market theoretically will create G.D.P. growth, but conceivable may do so at the cost of middle-outgrowth. Which is one of the primary cause of societal and political strife in the United States. People value an abundance of fair employment opportunities with fair wages to boot. The market values the bottom line and sometimes the bottom line does not include these values. However economic nationalism—which actually is more akin mercantilism—is like using a team of horses to draw one’s Lamborghini in this globalized economy. Which is why calls for economic nationalism are often hollow promises, regardless which party politic purports the cause.

It will always comes down to what you value as a society. If you value the idea of paying taxes so the kid across the street can get a free education or the widow on the other side of town can have three square meals a day then you tax accordingly. If you value having more savings and money to invest with as a small business then taxation would represent that perspective. If you value jobs returning to the United States then you would support corporate tax reform, assuming that C.E.O.(s) and board of directors choose to do so. Remember, they’re multinational, they have a choice in the matter.

This is what is commonsense here. If you look at tax reform as of November much of what is on the table accommodates the top of the market and potentially burdens the middle-class—that society of job holders if you will. Furthermore, it is not beneficial to small business owners and their cause due to the elimination of particular deductions…College students may loose subsidization and the widow on the other side of town may only be lofted one meal a day.

Now, if the top of the market chooses to trickle down the benefits of reform, it very well could help out. But that is a decision, a corporate value…not a requirement. Use some commonsense here, do you actually think that will happen? Or is more likely we have been had? We shall see. But to give the benefit of doubt, like the removal of the gold standard, this could have a positive reaction in the market. We could see it jump, enormously.

But also we have to ask ourselves the question: at what cost? Like Nixon’s decision to kill the gold standard. which bumped the market, the actual long-term effect were the irreconcilable budgetary deficits that we see in governments worldwide, the death of currencies, money manipulation, inflation, and the erosion of true value. In our case here and now, unless you are directly involved in the market itself, investing or trading theses publicly-traded companies, you may only feel the short-term repercussions of corporate tax reform, not it’s benefits. Who knows.

However, there is a commonsense way to get around this. Like with the gold standard being removed people simply created their own personal gold standard, hedging currency risk with private holdings of gold and silver. Maybe in the world of corporate domination a small remedy could be converting from employee status to a independent contractor who deposits payment in a C or S-Corp complemented with a “Capital Development” L.L.C.?

Maybe you can cleave some of the benefits embedded in the proposed tax reform by simply restructuring yourself from a business standpoint, while avoiding the potential repercussions. Or, if employee status is unavoidable, then at the least one can shuffle money into your corporate entity and spend it from that account, taking write-offs and the newly revised deductions as they come. It’s just a thought.

Cheers,

Bob Shannon.