Institute for Individual Investors

Member Login
6 votes
Thumbs Up! Thumbs Down!
Thank you for voting!

The 'Money Cycle" Revealed!

Tuesday, August 30, 2005 | Teeka Tiwari

For the last several weeks, the Fallen Angel Stocks team has been  urging caution.  We’ve recommended tightening stop losses, selling losers and most  importantly, we’ve pounded the table on covered call writing.  

Last week we saw the reason why.  The Dow ended down 1.5%, the S&P 500  was off 1.2% and the NASDAQ was down 0.7%.  The average stock is  down a lot more than that.  Look for more of the same going forward.  We’re using trading rallies to sell covered calls and have started  putting on selective shorts.

With oil prices skyrocketing, the average American is really  starting to feel the pinch.  As Dylan outlined in his excellent  article last week, Americans are beginning to squeeze their lifestyle  budget just to keep up.  If gas prices stay at these elevated levels and/or continue to go  higher, this will result in a transformational event that we call  a “Cycle Trigger.”  

“Cycle Trigger” events let loose a massive cycle of change that  unleashes a whole new “Money Cycle.”  “The Money Cycle” is how we  describe the repositioning of money from one part of the economy  to another.  Massive wealth is created in riding these “Money Cycles”.

High oil prices act as a global tax, meaning they suck hundreds  of billions of dollars out of the global economy and reposition  the majority of that wealth outside of our own and our allies'  borders.  While we despise tax time, at least our taxes are used  within our borders for the benefit of our economy.  With $70 oil,  all that extra money we spend on gas ends up in a vault under the  Arabian desert or in some South American dictator’s private bank  account.  

So that great sucking sound you hear at the pump is our  national wealth fleeing the country.  The repercussions of this will be widely felt across the US economy,  and for the savvy investor who understands the power of profiting  from “The Money Cycle,” this is a great time to rake in the dough.  

Movie chains, restaurants, ATV makers, boat builders etc. are all  going to see huge drop-offs in revenue and earnings as the  embattled American public struggles to make ends meet.  With only a 20 basis point spread between the 2-yr note and the  10-yr note and the Fed determined to push up short-term rates even  more, the big banks are going to get CRUSHED.  

Remember, they live and die based on the interest rate spread between  short- and long-term rates. Banks are just wholesalers of money; like any  good wholesaler, you want to buy cheap at wholesale (they have exclusive  access to money from the Fed at the discount rate) and sell high at  retail (long-term rates.)  

But what happens when there’s only a 0.2% difference between wholesale  and retail prices?  Answer: YOUR EARNINGS POWER GETS KILLED!!  Next week, we go deeper into “The Money Cycle” as we reveal more  “Cycle Triggers” that you can profit from RIGHT NOW!

Teeka Tiwari signature
Teeka Tiwari
Chief Investment Officer
ETF Master Trader
6 votes
Thumbs Up! Thumbs Down!
Thank you for voting!

Comments: