As we approach two decades (remember the Hanes Bottom of 666 for the S&P 500 in 2009) of relentless bull markets produced primarily by monetary manipulation, unsustainable debt, and inflation, investors are forced to look for creative ways to participate in the upside madness (S&P 500 now about 6000) without risking catastrophic loss. Of course, most of us have received invitations to many free dinners from annuity salesmen masquerading as financial advisors. The problem with investment annuities is that they require you to tie up your assets. You give up liquidity. These annuities siphon off some of your profits, change the rules of the game on an annual basis, and involve your signing on to a complex legal agreement. Of late, many of us have opted to seek refuge in U.S. Treasury Bills, I Bonds, or money market funds which pay a pretty good return but still fail to keep up with inflation.
But there is a way to maintain liquidity, participate in stock market gains, and guarantee no loss of principal (other than to inflation), and avoid annuity commissions and any weaselly contract. This roll-your-own strategy involves buying a secure interest-bearing investment and using the proceeds to invest in stocks. U.S. Treasuries or equivalent is the interest-bearing instrument. The proceeds typically are invested in long-term call options (LEAPS) on a market index at the current price (at the money). If you have heard that there are no-fee fixed index annuities, be assured the fees are there but are just hidden.
Monday, stocks fell 0.3% in Asia, 0.5% in Europe, and 0.8% in the U.S. on 15B shares traded. The VIX rose 9% to close at 17.40. The 10-Year U.S. Treasury bond yield fell 2% to end at 4.54. Precious metals declined 1%.
Tuesday, stocks declined slightly in Asia, advanced 0.5% in Europe, and ended little changed in the U.S. on 15B shares traded. The S&P 500 index closed below 5900. IBM ended below its 220 benchmark.
Wednesday, markets were closed for New Years Day.
Thursday, stocks fell 0.5% in Asia, rose 0.7% in Europe, and ended unchanged in the U.S. on 15B shares traded. Precious metals gained 2% and their miners rose twice that amount. Apple closed below its 250 benchmark.
Friday, stocks gained 0.3% in Asia, lost 0.6% in Europe, and rose 0.8% in the U.S. on 15B shares traded. The VIX fell 10% to close at 16.13. Precious metals and their miners fell about 1%. The S&P 500 index closed below 5900. IBM ended below its 220 benchmark. Finally, the Federal Reserve balance sheet declined 34B to 6.52T.