What the Mall Can Tell Us About A Post-Christmas Crash

Hey There fellow Income Hunters,

We have certainly been laying out a bullish case for being long stocks and commodities lately.

Like how the financial conditions are the easiest they have been in over 30 years …

PLUS record call buying and a put/call ratio near the lows of the dot-com bubble …

Which all feeds into the psychology of investors … 

So, I started thinking back to the 1987 stock market crash, the dot-com crash and the housing market collapse.

The one thing they all had in common was something that’s going on in the market right now …

For weeks heading into all three crashes everyone was bullish!

It’s just the makeup of a bubble … you never know when it’s over until it’s over.

So, I have been looking for reasons to be cautious while the sentiment is so one-sided.

Then I learned that S&P 500 Global Market Intelligence has picked seven mall owners that face exceptional risks in the coming months. 

Former Macy’s CEO Terry Lindgren weighed in on the findings with CNBC, saying, “Retailers which have a weak balance sheet today aren’t going to get relief in January. It’s going to get tougher. When the volume of purchases drops dramatically after Christmas, the expenses remain.”

It made me think we could be heading back to recession in Q1. That would just mean we have a correction, the Fed does another massive QE and we are back to the races.

However, we can’t pass on an opportunity that pays us handsomely and gives us more bullets to fight another day …

A voice of reason in a perfect storm of bullishness. 

Now this is when you take emotion out of the equation and consider a good reward-to-risk trade while it is not “general consensus!”

So, I pulled the trigger and purchased SPY 15Jan21 365/355 Put Spread.

  • For a debit spread of 2.46 on 100 shares just to have a bit of insurance against the portfolio. 
  • I can lose $246 or make $1,000. However, it is much more about diversification, good value and smart, objective decision-making. 
  • A small 5% correction and I collect on a 400% return just because the market may be a bit too frothy.

On that note, I am heading to New York to see my family for Christmas and will send a post-Christmas letter from there.

I’d like to wish everyone a very Merry Christmas and a safe, healthy, happy AND profitable New Year!! 

Live & Trade with Passion My Friends,

Bill


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