Basic Strategies

1
(No Transcript)
2
The Debt Problem

• The U.S. and Europe may be entering into a long
  term deflationary period
• Enormous debt which can not be repaid
• Policy makers have not made the necessary
  decisions to resolve the debt issue
• Markets move for reasons that transcend their
  basic fundamentals

3
Types of Debt We OweSources FT, IBD, The
Economist, WSJ, Barrons, Bloomberg

• Federal debt near 16 trillion
• Student loan debt 870 billion
• Personal debt over 2.4 trillion
• Mostly mortgage related
• Corporate debt 8 trillion
• Unfunded state and municipal debt 3.9 trillion
• Pension and health care for public service
  retirees
• Unfunded Medicare Liability 25 trillion
• Unfunded Social Security Liability 8 trillion

4
Historical Reactions to Debt

• Grow your way out
• Demographics rule against it for Europe
• U.S. attitudes towards immigrants help

5
Historical Reactions to Debt

• Grow your way out
• Demographics rule against it for Europe
• U.S. attitudes towards immigrants help
• Stagnation
• Japan is the primary example

6
Historical Reactions to Debt

• Default
• Greece has already defaulted
• Spain, Italy, and others will likely default

7
Historical Reactions to Debt

• Default
• Greece has already defaulted
• Spain, Italy, and others will likely default
• Inflation
• QE1, QE2, Operation Twist, and Twist Again have
  not resulted in inflation

8
What Can Investors Do?

• Use strategies that offer protection against
  catastrophic losses

9
Keep Yourself Informed

• Daily Treasury Yield Curve Rates
• Flight to safety
• Lower yields investors are fleeing stocks
• Danger is that a bond bubble is forming

10
Keep Yourself Informed

• Bureau of Labor Statistics (Table A15)
• U3 rate This gets all the attention
• U6 rate The real unemployment rate

11
A Good Investment

• Buy
• American companies with a strong international
  presence
• Companies that pay dividends and have a history
  of dividend growth
• Dividend payout ratio less than 60
• Positive and growing cash flow
• Low or no debt

12
Basic Risk Management Strategies

• Sell Puts
• Generate yield
• Buy stocks at less than current price
• Sell Calls
• Generate yield
• Sell stocks at higher than current price

13
Why Sell Options?

• Ive been rich, and Ive been poor. Rich is
  better.
• - Sophie Tucker

14
The Option Buyer Must Be Correct About Three
Things

• Direction of the move
• Magnitude of the move
• Duration of the move

15
The Call or Put Seller Needs To Be Correct About
Only One Thing

• Direction (sort of)
• OK if the stock rises slightly
• OK if the stock goes sideways - does nothing
• OK if the stock drops slightly