Month: May 2022

Statistics: Gold versus the Stock Market This Century

by Fred Fuld III

It may look like gold hasn’t been doing much of anything recently. Even for the last twelve months, gold has been relatively flat.

So what about long term. Can gold outperform the stock market over a long period of time?

Of course, it depends on the time frame, but let’s look at this century, beginning January 3, 2000 (the first business day of the year).

Based on that time frame, gold has far outperformed the various stock indices, including the S&P 500, the NASDAQ, and the Dow Jones Industrial Average.

As a matter of fact, gold has increased by 558% over that time, versus 329% for the S&P 500 as measured by the SPDR SPY ETF (SPY), which was only up 329%. This includes dividends for the SPY.

The statistics for the returns are below, which also include the Dow and the NASDAQ.

Gold versus Stocks This Century
Percentage increase in price from January 3, 2000 to the present
Dow Jones Industrial Average 190%
S&P 500 as measured by SPY 329%
NASDAQ as measured by QQQ 276%
Gold price per ounce 558%
* Adjusted for splits and dividend and/or capital gain distributions
Sources: Yahoo!Finance historical data, sdbullion.com

Is gold in your portfolio?

Hey Billionaires: If You Think That Taxes Should Be Raised for Billionaires, You Should …

by Fred Fuld III

The United States government has a huge amount of debt. As a matter of fact, the government debt now stands at more than $30,482,000,000,000.

One way to pay down that debt is through higher taxes. There are several billionaires that believe taxes on billionaires should be increased for themselves and other billionaires

Some of these wealthy individuals include:

  • Warren Buffett
  • Bill Gates
  • George Soros
  • Eli Broad
  • Michael Bloomberg
  • Mark Cuban

But what I can’t understand is that if the wealthy really believe this, what are they waiting for?

Billionaires that believe their taxes should be higher should go ahead and make more payments to the U.S. Government.

Nothing is stopping them. They can write a check out right now. Apparently, quite a few people have “donated” to the government.

There are actually a couple ways to make these payments to help reduce the national debt. Here is what they need to do:

They can go to Pay.gov, and pay online by credit card, debit card, PayPal, checking account, or savings account.

If they pay by credit card, I hope they have a nice high credit limit. Maybe they can earn points on their payments.

The other way is by writing a check, and make it payable to the Bureau of the Fiscal Service, and, in the memo section, notate that it is a gift to reduce the debt held by the public. The check should be mailed to:

Attn Dept G
Bureau of the Fiscal Service
P. O. Box 2188
Parkersburg, WV 26106-2188

So what are these billionaires waiting for? Why don’t they put their money where their mouth is?

10 Ways to Make Money in a Bear market

by Fred Fuld III

Although the stock market has been rising for the last several days, some investors and traders believe that this rise is only temporary, and that we are in the beginning of a bear market. If you want to profit from downward markets and falling prices, there are many ways to do so.

Several techniques are available to make money in a bear market, some of which are speculative, and some not that risky. Even if you have a small account, there are ways to protect yourself, and even make money on the downside. Here are some of those strategies.

1. Sell a Vertical Call Option Spread

This strategy is a little complicated, but I listed it first, because it is one of the least risky, since your losses are limited, unlike most of the other strategies listed here. Also, I listed it at the beginning, because I use this trading technique all the time.

If you are familiar with options, then selling a vertical call spread is a great way to make money when a stock drops while protecting yourself if the stock goes up. (This happens to be my favorite strategy.)

This involves shorting an out of the money call option and buying a further out of the money call option at the same time. If the stock drops or stays the same, you make money from the short call which exceeds the loss on the long call. If the stock goes up to the strike price of the short call, you still make a profit. It is only when the stock rises above the strike price of the short call that you begin losing money.

To make it simple, here is an example:

Stock is at 50

Sell (short)  one call with a strike price of 51 for 3 (an option that is trading at 3 means $300)

Buy one call with a strike price of 52 for 1 ($100)

If the stock drops to 45, the 51 call drops to $0 and you make $300 because you shorted it, and the 52 call drops to $0 losing $100 because you own or were long it, netting you a profit of $200.

If the stock rises from 50 to 100, you lose $4900 on the 51 call that you shorted, but you make $4800 on the one that you bought, so you only lose $100.

Generally, you want to use options that expire in 40 to 60 days, and close out your position in 15 to 25 days.

Disadvantages of the selling a vertical call spread
  • Your profit is limited
  • You need approval from your broker to do option spreads
  • Both legs of the spread need to be placed simultaneously (easy to do with most trading platforms)
  • May need to wait 25 or 30 days to see a profit

2. Shorting Stocks

This is one of the most speculative ways of making money in a bear market. In simple terms, you make money when the stock goes down and you lose money when the stock goes up. What technically happens is that you borrow the shares and immediately sell them (this all is done electronically through your brokerage firm) and since you owe those shares, you eventually have to buy them back at some price, hopefully a lower price, in order to return those shares. The difference between your sale price and eventual purchase price is your profit (or loss, if you buy back at a higher price).

Can you make a lot of money shorting stocks in a bear market? Yes. Is it speculative? Very. Can you lose a lot? Most definitely. This is why it is so risky. When you short a stock, the lowest point it can drop to is zero. Whereas, if the stock goes up, the amount it can rise is unlimited. Let’s say you short 100 shares of a stock at $20 a share. If you put up funds equal to 100% of the value of the shorted amount, and the stock drops to zero, you’ve made a 100% return. However, suppose the stock goes from 20 to 100, you end up losing 400% of your money with lots of margin calls along the way. This is called a short squeeze. But even on a short term basis, an investor can lose money very fast.

Unfortunately for those who do their trading in retirement accounts, such as IRAs, shorting stocks is not allowed.

So in summery, do I think you should short stocks? Absolutely not, unless you are a professional trader. The risk is almost infinite. If you understand options real well, hedged short selling might be OK (see the next strategy), as long as you are an advanced trader, and know what you’re doing.

3. Hedged Short Selling

Hedged short selling is a strategy whereby you short a stock and at the same time, you buy a close-to-the-money call option. That way, if the stock shoots up, you are protected with the call option. If the stock drops, you will lose what you paid for the option, but you will make money on your short stock position.

Example: you short 100 shares of a stock that is currently trading at 50 (so you short $5000 in stock), and you buy a call option with a strike price of 52 for 1 ($100).

The stock goes to 40. You make $1000 from the stock dropping from 50 to 40, and you lose the $100 you paid for the call option, with a net profit of $900.

The stock stays the same at 50. You don’t make any money on the short sale fo the stock and you lose $100 on the call option for a net loss of $100.

The stock goes up to 60. You lose $1000 on the short stock, but the value of the call option will increase from 1 to 10 ($100 to $1000), netting $900 on the difference, for an overall loss of $100.

In other words, in the example above, you can only lose $100, if the stock stays the same or goes up, but if the stock drops, the profit can be substantial.

Actually, to be more accurate, if the stock goes to 51 and stays there, you will lose $100 on the short stock sale and $100 on the call option, for a total maximum loss of $200. Even still, it may be worth the small loss in case you are wrong about a bear market.

Disadvantages of the hedged short selling
  • You need approval from your broker to short stock and buy options
  • Both positions should be placed simultaneously (easy to do with most trading platforms)

4. Short (Bearish) ETFs

The Exchange Traded Fund known as the Bearish ETF or Short ETF is another option. What these ETFs do is provide a return opposite to the return of the index, sector, or industry that it is tracking.

For example, the Short Dow30 ProShares (DOG) provides a return that is the inverse of the Dow Jones Industrial Average. If the Dow goes down 2%, the DOG is expected to up 2%. The Short QQQ ProShares (PSQ) ETF gives a return that is the inverse of the NASDAQ 100 Index.

The nice thing about these short ETFs is that your losses are limited. Also, if you are long individual stocks that you don’t want to sell, these can be good for protecting your overall portfolio on the downside.

5. Leveraged Bearish ETFs

If you like volatility, you will love the leveraged bearish ETFs. What these ETFs do is provide double, and in some cases triple the inverse return of indices.Some examples include the UltraShort Consumer Services ProShares (SCC) and the ProShares UltraShort S&P S&P 500 (SDS).

In addition there are several triple leveraged bearish ETFs. Direxion Daily MCSI Real Estate Bear 3X Shares (DRV), Direxion Daily Energy Bear 2X Shares (ERY), and ProShares UltraPro Short Russell 2000 (SRTY) are just a few of the many leveraged bearish ETFs.

The volatility of these ETFs is substantial, and so are the wide bid and asked spreads that I’ve seen occasionally.

The advantage of these trading vehicles is that they are a way of shorting on margin, with a limit on the downside. The disadvantage is that the losses can be quick and large, especially with the triple leverage short ETFs.

6. Bear Funds

It may be hard to believe, but there are actually a large number of bearish mutual funds for the long term bearish investors. These include the Grizzly Short Fund (GRZZX), the PIMCO StocksPlus TR Short Strategy Institutional Fund (PSTIX), and the ProFunds Bear Investors Fund (BRPIX). These funds have minimum investments ranging from $1,000 to $5,000,000.

7. Puts

First, a little about option pricing.  Puts and calls are priced on a per share basis, so a put at $1 would cost $100 for a 100 share option, or a call at $3.50 would cost $350.

A put is the option to put your stock to someone at a particular price within a certain period of time. In other words, if you own a stock that is trading at 22 and you buy a put at a dollar which gives you the right to put your stock to someone at $20 per share within three months, there are a couple of things that could happen. The stock could tank to $14 a share and you could put your stock at 20, or just resell the put for 6 (the difference between 14 and 20) and collecting the profit. You would be far better off than just doing nothing. And if the stock goes up or stays about the same, you are just out your $100 for the option. Puts can be useful for experienced traders.

8. Cash

There is one other way to make money in a bear market. Sell everything, and keep your money in cash, with the safest way being a T-bill money market fund, that only owns T-bills. (Money market funds that invest in repos are supposed to be just as safe, but I consider them slightly more risky than T-bills.) The advantages are that you can’t lose money and you can receive an income from the investment.

The alternative cash investment is putting your money in a bank certificate of deposit or savings account. Your money is safe up to the FDIC limits, but the interest rate will be very low.

9. Anti ETFs

The Anti-ETF is a new investment vehicle that has cropped up recently. The goal of these ETFs is to provide the reverse return of another popular actively managed exchange traded fund, as opposed to the bearish ETF which attempt to track the inverse of an index, like the ProShares Short S&P500 ETF (SH).

The most popular is the Tuttle Capital Short Innovation ETF (SARK), which has a goal of achieving the inverse of the return of the popular ARK Innovation ETF (ARKK) managed by Cathie Wood.

10. Series I Bonds

If you think the bear market will last for a year or more, Series I bonds are the way to go. These bonds never drop in value and currently pay 9.62%. Plus, they are backed by the U.S. Government. For more information on these bonds, check out the article Series I Bonds Now Paying over 9%.

There are obviously additional risks involved with shorting stock and options, which you need to delve into with your broker before utilizing those strategies. If we are in a bear market, hopefully you can protect your portfolio and make some money on the downside.

Author does not own any of the above mentioned securities.

Series I Bonds Now Paying Over 9%

by Fred Fuld III

How would you like to own the following investment:

  • It currently pays 9.62%
  • It is backed by the United States Government
  • It has an inflation factor
  • There is no commission
  • You can own it either electronically or in paper form
  • The interest is exempt from state and local income taxes
  • Interest earnings may be excluded from Federal income tax when used to finance education
  • The investment never drops in price
  • There is no minimum investment (well almost no minimum, you can invest less than $100)

So what kind of investment is this? No, it is not Forever Stamps. Sound too good to be true? It is called the Series I Savings Bond.

Here are the details.

What is an I Bond?

A Series I savings bond is a security issued by the United States Government that earns interest based on both a fixed rate and a rate that is set twice a year based on inflation. The bond earns interest until it reaches 30 years or you cash it, whichever comes first.

What’s the interest rate on an I Bond I buy today?

For the first six months you own it, the Series I bond is currently paying interest at an annual rate of 9.62%. A new rate will be set every six months based on the bond’s fixed rate and on inflation.

Special Benefits of Series I Bonds

You can own a bond in the name of a living trust. I know, because I’ve done it. It will be tied to you Social Security number.

For those that want to invest a lot of money in these bonds, they need to be aware that there is a $10,000 limit per calendar year per person. So a married couple could buy $20,000 now. Then next January, they could buy another $20,000, for a total of $40,000 in less than a nine month period.

In addition, there is another way they could buy more. An additional $5,000 per year can be invested in Series I bonds, using their tax refund. If you haven’t done your taxes yet (like me; I filed an extension, and yes, I’m still getting 1099s in late May), and you are expecting a refund of over $5,000, then $5,000 can be applied towards I bonds.

For next year, if you aren’t anticipating a big refund, you can always overpay your taxes by $5,000 so that you can get the maximum amount in Series I bonds for next year.

So assuming all things are in place, a married couple could theoretically invest $50,000 in I bonds in less than a year.

Who may own an I Bond?

Individuals Yes, if you have a Social Security Number and meet any one of these three conditions:

  • United States citizen, whether you live in the U.S. or abroad
  • United States resident
  • Civilian employee of the United States, no matter where you live

To buy and own an electronic I bond, you must first establish a TreasuryDirect account.
Children under 18 Yes, if they meet one of the conditions above for individuals.
Information concerning electronic and paper bonds:

  • Electronic bonds in TreasuryDirect. A child may not open a TreasuryDirect account, buy securities in TreasuryDirect, or conduct other transactions in TreasuryDirect. A parent or other adult custodian may open for the child a TreasuryDirect account that is linked to the adult’s TreasuryDirect account. The parent or other adult custodian can buy securities and conduct other transactions for the child, and other adults can buy savings bonds for the child as gifts.
  • Paper bonds. Adults can buy bonds in the name of a child.
Trust, estate, corporation, partnership and some other entities Electronic bonds (in TreasuryDirect): Yes
Paper bonds:

  • Trusts and estates: In some cases, Yes
  • Corporations, partnerships, other entities: No

How can I buy I Bonds?

Two options:

What determines who owns an I Bond and who can cash it?

How you register the bond at purchase determines who owns the bond and who can cash it. The registration is the name of the owner (either a person or entity), the Taxpayer Identification Number, and, if applicable, the second-named owner or beneficiary.

What do I Bonds cost?

You pay the face value of the bond. For example, you pay $50 for a $50 bond. (The bond increases in value as it earns interest.)

Electronic I bonds come in any amount to the penny for $25 or more. For example, you could buy a $50.23 bond.

Paper bonds are sold in five denominations; $50, $100, $200, $500, $1,000

How much in I Bonds can I buy for myself?

In a calendar year, you can acquire:

  • up to $10,000 in electronic I bonds in TreasuryDirect
  • up to $5,000 in paper I bonds using your federal income tax refund

Two points:

  • The limits apply separately, meaning you could acquire up to $15,000 in I bonds in a calendar year
  • Bonds you buy for yourself and bonds you receive as gifts or via transfers count toward the limit. Two exceptions:
    • If a bond is transferred to you due to the death of the original owner, the amount doesn’t count toward your limit
    • If you own a paper bond issued before 2008, you can convert it to an electronic bond in your account in TreasuryDirect regardless of the amount of the bond. (The annual limit before 2008 was greater than today’s limit of $10,000.)

Can I buy I Bonds as gifts for others?

Yes.

Electronic bonds: You can buy them as gifts for any TreasuryDirect account holder, including children.

Paper bonds: You can request bonds in the names of others and then, once the bonds are mailed to you, give the bonds as gifts.

How much in I Bonds can I buy as gifts?

The purchase amount of a gift bond counts toward the annual limit of the recipient, not the giver. So, in a calendar year, you can buy up to $10,000 in electronic bonds and up to $5,000 in paper bonds for each person you buy for.

Disadvantages

The disadvantages, although minimal are:

  • The bonds are Federally taxable
  • There is a maximum amount that you can buy
  • Minimum term of ownership is one year
  • Early redemption penalties if redeemed before 5 years, forfeit interest from the previous 3 months

So if you are looking to boost your yield on some of your cash, and getting more from a bank savings account, certificate of deposit, brokerage cash account, or treasury bond, you should seriously consider a Series I Bond.

How to Invest in Apple Without Buying Apple Stock Plus Get Free Diversification

by Fred Fuld III

Apple (AAPL) has dropped about 18.7% from its high over the last several months. If you think the stock has bottomed out, and may be on the rise, there is an alternative to just buying the stock outright.

No, I’m not talking about stock options. What I’m referring to is Warren Buffett’s Berkshire Hathaway (BRK-A) (BRK-B). Do you realize that Apple makes up 47.6% of the Berkshire Hathaway portfolio?

So if you buy Berkshire, that means that almost half your funds are indirectly invested in Apple.

So what else do you get when you buy Berkshire, besides Warren Buffett’s expertise?

Here are some of the other stocks that make up a large portion of the portfolio:

Bank of America (BAC) 13.5%

American Express (AXP) 7.5%

Coca-Cola (KO) 7.2%

Kraft Heinz (KHC) 3.5%

Moodys (MCO) 2.9%

There are actually over 40 stocks in the Berkshire Hathaway portfolio, spread out over a lot of different industries, so it is well diversified.

I’m not recommending Berkshire as an investment because I think the bear market will continue (and I never make any stock recommendations anyway), but if you are bullish on Apple and you don’t mind a little stock market diversification, you might want to take a look at Berkshire, if not now then at some point when you believe the market has bottomed out.

 

Disclosure: Author owns AAPL and KO.

Silver as a Hedge Against Inflation: Top Silver Stocks

by Fred Fuld III

Gold and silver have historically been considered a flight to safety, especially during times of high inflation and economic uncertainty. Silver has outpaced inflation during certain time frames.

One of the advantages of silver over gold is that the metal is less expensive, making it more affordable to smaller investors. In addition, silver has far more commercial and industrial uses than gold.

There are several ways to invest in silver. Here are the primary alternatives.

Silver Bullion

You can buy silver bars and rounds in various sizes and weights. They may be produced by the United States government or by private mints. They are easily identifiable and fairly convenient to purchase though coin shops or online gold and silver dealers. You obviously have to be concerned about storage safety do to the potential for theft.

Junk Silver

Junk silver refers to U.S. dimes, quarters, and half dollars minted in 1964 or early, which ere made with 90% silver. These coins have little to no numismatic value, making them a reasonable and simple way of accumulating silver at a reasonable price. Junk silver is available from numerous coin and bullion dealers.

Silver ETF

If you want to invest in silver directly without taking physical ownership, the best way is though a silver exchange traded fund, such as the iShares Silver Trust (SLV). This ETF can be bought and sold just like any stock, without having to worry about storage.

Silver Stocks

There are several companies that specialize in primarily mining for silver. Most of these are Canadian companies, and three of them pay dividends.

First Majestic Silver Corp. (AG), which trades on the NYSE, has a market capitalization  of $2.43 billion. The stock has a high trailing price to earnings ratio of 67.7 but a forward P/E ratio of 18.6. Earnings per share for next year are expected to be up 218.8%. The stock pays a small dividend of 0.21%.

Pan American Silver (PAAS) trades on NASDAQ. It has mines in mines in Canada, Mexico, Peru, Argentina, and Bolivia. This $5.24 billion market cap stock trades at 52.6 times trailing earnings and 18.8 times forward earnings. Estimated earnings per share for next year are expected to increase by 35.96%. The company pays a decent dividend yield of 1.97%.

Silvercorp Metals (SVM) is a smaller company, with a market cap of $524.5 million. The company’s mining properties are in China and Mexico. The company has several mines in Mexico, and interests in one mine in Canada. The stock has a very favorable trailing P/E ratio of 15.5, and an a better forward P/E of 10. Just this year, earnings per share jumped by 33%. The dividend for this stock is 1.97%.

Silver Mining ETFs

A diversified way to invest in silver mining companies is through an ETF. The most  popular are Global X Silver Miners ETF (SIL), ETFMG Prime Junior Silver Miners ETF (SILJ), and iShares MSCI Global Silver and Metals Miners ETF (SLVP).

Maybe one of these investments may give you a sterling portfolio.

 

Disclosure: Author didn’t own any of the above at the time the article was written.

Stocks Going Ex Dividend in May 2022

The following is a short list of some of the many stocks going ex dividend during the next month.

Many traders and investors use the stock trading technique called ‘Buying Dividends,’ also commonly referred to as ‘Dividend Capture.’ This is the strategy of buying stocks before the ex dividend date and selling the stock shortly after the ex date at about the same price, yet still being entitled to the dividend.

This technique generally works in bull markets and flat or choppy markets, but you need to avoid the strategy during bear markets. In order to be entitled to the dividend, you have to buy the stock before the ex-dividend date, and you can’t sell the stock until after the ex date.

The actual dividend may not be paid for another few weeks. WallStreetNewsNetwork.com has compiled a downloadable and sortable list of the stocks going ex dividend in the near future. The list contains many dividend paying companies, lots with market caps over $500 million, and some with yields over 2%. Here are a few examples showing the stock symbol, the ex-dividend date, the periodic dividend amount, and the yield.

Anheuser-Busch Inbev SA (BUD) 5/3/2022 0.407 0.95%
Levi Strauss & Co (LEVI) 5/5/2022 0.10 2.12%
Wells Fargo & Company (WFC) 5/5/2022 0.25 2.29%
Walmart Inc. (WMT) 5/5/2022 0.56 1.46%
American Electric Power Co. (AEP) 5/9/2022 0.78 3.05%
Honeywell International Inc. (HON) 5/12/2022 0.98 2.06%
Starbucks Corporation (SBUX) 5/12/2022 0.49 2.63%
Charles Schwab Corp (SCHW) 5/12/2022 0.20 1.21%
Exxon Mobil Corporation (XOM) 5/12/2022 0.88 4.13%
Amgen Inc. (AMGN) 5/16/2022 1.94 3.33%
Target Corporation (TGT) 5/17/2022 0.90 1.57%
Johnson & Johnson (JNJ) 5/23/2022 1.13 2.50%
The Kraft Heinz Company (KHC) 5/26/2022 0.40 3.75%
Goldman Sachs Group, Inc. (GS) 5/31/2022 2.00 2.62%

The additional ex-dividend stocks can be found HERE . (If you have been to the page before, and the latest link doesn’t show up, you may have to empty your cache.) If you like dividend stocks, you should check out some of the other high yield stock lists at WSTNN.com HERE .

Dividend definitions:

Declaration date: the day that the company declares that there is going to be an upcoming dividend.

Ex-dividend date: the day on which if you buy the stock, you would not be entitled to that particular dividend; or the first day on which a shareholder can sell the shares and still be entitled to the dividend.

Record date: the day when you must be on the company’s books as a shareholder to receive the dividend. The ex-dividend date is normally set for stocks at two business days before the record date.

Payment date: the day on which the dividend payment is actually made, which can be as long at two months after the ex date.

Don’t forget to reconfirm the ex-dividend date with the company before implementing this technique.

Disclosure: Author did not own any of the above at the time the article was written; affiliate links are on this page.