Here at The Daily Cut, we have a strong influence from Legacy cofounder Bill Bonner.
Bill’s beat is money. How it moves. Where it goes. And why.
And in today’s mailbag edition of The Daily Cut, three of our Legacy experts tackle the difficult question of money’s digital future… and how you should prepare for it.
But before we get to that, two questions for master trader Jeff Clark…
First up, one of your fellow readers has a follow-up to Jeff’s recent promise to finish writing his own options trading book by October 2020.
Reader question: If you were to recommend one book on technical analysis, what would it be? Thanks.
– Wayne G.
Jeff’s answer: Technical Analysis for Dummies will give you a good “textbook” education on technical analysis (TA).
But you need to remember that “textbook” education doesn’t always translate to “real-world” practice.
My view of TA is perhaps different than most folks who rely on it…
In the short term, stock prices move based on emotion. And emotional moves tend to create trading opportunities.
TA is the best way to measure the emotions in the market, or in individual stocks.
But emotions evolve. And most TA textbooks don’t account for that evolution. So, you need to approach technical analysis as more of an art than a science.
A good textbook will give you a solid understanding of the art. But the rules and conclusions are not absolute.
Our next question for Jeff comes from a grateful reader who wants to know more about when to get out of a trade…
Reader question: Hi Jeff. I’ll get to my question, but first…
I’ve been a subscriber since May of this year, and it has been a fantastic ride. Thank you for your expertise in the world of options and the market, but more importantly, to me anyway, thank you for your humility.
I have subscribed to some other services within your group, and the hype that is injected into their write-ups is a big turn off. You’re a breath of fresh air, and I know this attribute is a big reason you’re the most popular among other folks.
My question… Knowing there is time decay in options, is there a period of time to get out of a trade when it continues to not go the way you anticipated, again, just looking at the parameter of time decay?
All of the other indicators are set up for it to go aggressively in the direction you anticipate, but maybe it might take off a little later than anticipated and the option will expire before things take off.
In the meantime, with a couple weeks before expiration, a person watches the value of the option decrease substantially every day, due to the time decay factor, while other indicators are saying everything is set up for a breakout.
Is there a time frame, say two weeks or whatever, to cut losses and purchase other options with an expiration a little later to get a better time decay value?
Or is it worth keeping right down to the last day because if it moves drastically, even with only a few days left, the drastic move will make up for the time decay? I hope that makes sense… I really appreciate your help on this.
– Ross N. (Legacy Research member)
Jeff’s answer: Thank you for such a nice note.
Option premiums start to decay rapidly about two weeks prior to the expiration date. Two weeks is 10 trading days. So, each day that passes without the stock moving in the desired direction is a loss of 10% of the time premium of the option.
That’s why, generally speaking, if you’re selling options to generate income, you should sell options with short-term expiration dates.
And, if you’re buying options, you should buy options with a little extra time.
Personally, I start to get nervous when I own options that expire in two weeks or less. A one-day move in the wrong direction can wipe out a lot of option premium. So, if I still like a trade setup and I still like the prospects for a move in my direction, then I’ll often look at rolling that position forward about two weeks prior to the original expiration date.
Or, if I have a small profit on the trade, but the stock hasn’t reached my target price yet, I’ll often cash out of the position early when there’s two weeks or less before expiration. I’ve left some money on the table by doing that. But I’ve also saved myself the anguish of watching a modestly profitable trade turn into a loser because of one bad day in the stock.
Moving on…
In a recent edition of his daily letter – The Bleeding Edge – Jeff Brown revealed that the feds are considering a digital version of the U.S. dollar. But one reader isn’t convinced that Jeff has it right.
So we put his concerns to Jeff. And, as a special bonus, we asked crypto expert Marco Wutzer and monetary authority Dan Denning to weigh in, too…
Reader question: Hi Jeff! I’m an avid reader of all your newsletters, and I had a question about today’s Bleeding Edge article on the digital dollar.
I agree that the digital dollar is the wave of the future, but I’m not sure about your conclusion that the age of fiat currency is coming to an end.
Do you believe that the electronic dollar will be on a distributed-ledger platform? I’m thinking centralized would be more likely, in which case it will just be electronic fiat currency, where the value of the dollar can still be manipulated. I’d welcome your thoughts on this.
– Rich L. (Legacy Research member)
Jeff’s answer: These are very important questions.
No, a government-backed electronic/digital currency will not be on a true decentralized distributed ledger. I just don’t see it. No government would cede control of its monetary policy. I envision that they will use private, permissioned ledger technology that restricts access to a specified number of parties.
This design will also allow governments to control the monetary policy of the digital currency. This contrasts with blockchains like bitcoin or Ethereum, where the monetary policy is predetermined by mathematical equations.
And yes, to your point, this will result in an electronic currency that looks and feels just like a digital fiat currency. The benefits of and incentives to implement this kind of solution are control of monetary policy and the ability to track and tax every single transaction that takes place.
Marco’s answer: The dollar is already roughly 90% digital. The long-term shift towards digital currencies is well underway.
In several countries (Denmark, Sweden, and China come to mind), it is often not even possible to pay with physical cash anymore. As the millenials and Gen Z rise, and the baby boomers shift into the background, this trend will only accelerate. However, digital doesn’t mean decentralized. It’s still fiat currency.
Decentralized cryptocurrencies such as bitcoin exist in a parallel universe outside of the influence of central banks. They are governed by their own protocols, immutable, censorship-resistant, and available to anyone. These superior competitors to fiat currencies are the real trend to watch. The Blockchain Ecosystem is where huge investment returns are waiting for you.
Dan’s answer: As far as I can tell, a digital currency issued by the government is still fiat money. It’s a different medium (electronic instead of physical). But the money has value because the government says it has value. That’s what fiat money is. Money that is legal tender because the government says so.
Xi Jinping moved China a lot closer to a digital currency in 2020 by backing blockchain last week. That’s what led to bitcoin’s surge. But China likes the blockchain (and has even passed a law making criticism of it illegal) because the technology allows for MORE government control of money. Not less.
A digital dollar might be more useful in terms of cross-border trade. The more useful it is, the greater demand will be. But unlike, say, bitcoin, there is no artificially imposed scarcity on dollars. As we’ve seen in the repo market, the Fed can conjure up hundreds of billions in just a few days.
There will be only 21 million bitcoin ever mined (and some of those are already missing and won’t be recovered). There’s already $22 trillion in U.S. government debt. It will be $30 trillion before you can say “President Warren,” and $40 trillion not long after. Going digital won’t save the dollar. It will accelerate its total destruction. Buy gold.
As you’ve probably seen us write before… First-time gold investors should start with physical gold – preferably common one-ounce coins.
And for other ways to own gold, you can download our free guide on how to buy physical gold here. It was put together by Legacy cofounder Doug Casey’s crack research team.
That’s all for this week.
Enjoy your weekend,
James Wells
Director
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