Let that Bull Loose!
How to prepare for 4 years of deregulation and tax cuts!
Hello Pulsers,
What a week it has been for the markets. Equity, Bitcoin, and commodities rallied due to the election, which was a decisive win for the Republican party. In this week’s newsletter, we will take a look at the following concepts:
What does Trump’s policy mean for the markets?
Why banking Could be the Biggest beneficiary of the deregulation promised by Trump.
Why trading the long end of the curve could provide some stellar opportunity.
Let’s get started. Before doing that, please subscribe to my newsletter and share it with a friend.
On Markets
The S&P 500 touched the illusive 6,000 handle briefly on November 8th.
Bitcoin is now getting closer to $90,000 per coin! It is hard to imagine that it was trading in the $20k range just last year.
So what is happening? As expected, we are getting closer to a new era of deregulation and tax cuts, which are going to be a catalyst for a strong market. What I usually like to mention is that if you would like to look at how the markets would do under Trump, it is a good thing to take a look at how the market reacted under Ronald Reagan's era.
Reagan Era of the Market
During the 8 years of Ronald Reagan, the S&P 500 grew from around 130 points in 1981 to over 280 points by the end of Reagan's second term in 1989, more than doubling during his time in office.
This increase represents an average annual return of about 11.3%, adjusted for inflation. While this is an impressive return during the 8-year run, it is important to note that the performance was not a straight line.
In the first year of Reagan, the market struggled, dealing with the high inflation and recession.
Trump’s Next 4 Years
The economy that Trump is inheriting is much stronger than the one Reagan inherited. Unemployment is closer to 4%, the stock market is at an all-time high, the housing market is near an all-time high, and inflation is on its way down to the 2% target within the next 12 months.
Trump is inheriting a much healthier market, but more tax cuts and deregulation set the stage for very strong market performance in the next few years.
The part of the trade that is very clear right now is that banking deregulation is on the way. Take a look at some of the bank stocks, specifically the banks that focus on boutique, smaller M&A deals.
The strong move upward is a clear sign that, with both houses and the Senate, one Trump promise is coming true: deregulation.
I called these trades in my previous newsletter and mentioned which sectors could benefit from the deregulation. Make sure to subscribe and share this publication with your friends if they are interested.
Assume the Position
My trading remains opportunistic, and trades will remain around rates. I also remain bullish on a few single stocks where I see opportunity.
I will continue to run the wheel strategy on SPY 0.00%↑ , focusing more on selling puts and 25 delta calls.
On rates and TLT 0.00%↑ , I will be a heavy option seller if we break below $90 and touch the 8 handle on the $TLT.
My thesis on rates is that the path for the long-term rate is higher, with 10-year trading closer to 5%, but this path will not be a straight line. I will sell puts in the area of weakness and cover accordingly. The chart below shows how I sold the $89 puts on Wednesday and covered today.
I think over the next year, we will have TLT 0.00%↑ , which will oscillate between $85 and $100, and this would provide an excellent trading opportunity for any range trader on how to take advantage of.
Last Words
As many of you have seen, most of the charts and analyses I use are from interactive brokers. Interactive Brokers provides some of the best commission structures, yields on idle cash, and, more importantly, one of the best tools for active trading. As an active options trader, I can only imagine myself trading with the tools that they have provided.
If you are still deciding, check out their free simulator and everything else they provide to help you get started.
Below are the links to help you get started.
Lastly, if you enjoy my writing and delivery, and if you have not already, make sure to check out my best-selling book on Amazon! It has been a best seller for four years in a row! Please support my work by purchasing my book and leaving me an honest review. Thank you.
Disclaimer
The opinions provided in this newsletter are mine and mine only and do not represent any firm or other affiliation.
You understand that NO content published and discussed during this newsletter constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.
You further understand that I will NOT advise you personally concerning the nature, potential, value or suitability of any particular investment, security, portfolio of securities, transaction, investment strategy or other matter.
This presentation and the content provided are for educational purposes only.