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Q2 2020 3Sig Calculator Demonstration

This video demonstrates how to use the calculator on The Kelly Letter subscriber site, with real data for the 3% Signal plan from Note 26 sent June 28, 2020.

Kelly Letter subscriptions include access to the signal calculator.

Use it to generate your own quarterly Sig system signals using price change only. No guesswork or pundit opinions required.


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Do Not Sell Stocks Because of Riots

Transcript:

America is burning. That’s what every media outlet will tell you. And investors are asking me, should I sell my stocks?

Hi, I’m Jason Kelly with The Kelly Letter. And I’m here today to tell you right up front, absolutely not.

0:16
The riots that are taking place across America started about a week ago.

We need not get into why they happened or the history of America or any other aspect of this that you can find anywhere in mainstream media, in order to analyze the impact on our portfolio.

So I want to be clear that today I am talking about the financial aspect of the riots taking place across America. I am not making any social commentary, or even talking about policing in America or any of the other issues involved in what is going on. I am purely focused on the financial impact of this and what it means to you as a stock investor.

0:58
It’s been about a week since these have been going on.

And people have been surprised that stocks have risen more than 3% over the past week. Why is that?

How in the world can stocks keep rising, and — in a slightly bigger picture — how in the world have stocks continued rising during this “unprecedented, enormous economic shutdown, Great Depression 2.0,” etc. Insert adjective here; insert calamity description here.

The reason — as we’ve been noting all along, I’ve been saying to you since March, you’ve been emailing me in agreement since March — is that this is not a real recession. This is an artificial shutdown, a purposeful shutdown of the economy, a pause switch, not a complete crash of organic damage.

1:43
With that in mind, that’s why stocks have been rising.

So as stocks rise — I’ll do it this way — as the stock market works its way higher under the big general theme of the world economy is coming back from this deliberate shut down for the pandemic.

As that’s going on, and now on the timeline, we insert riots. In one country. It is the world’s largest economy, but one country in the world we have riots taking place.

All right, ask yourself, what impact does it have on Apple’s business plan, or Microsoft’s business plan, or Coca Cola’s business plan, that a guy somewhere threw a rock through a window, or a bunch of people somewhere else gathered outside the White House even, or people shut down a street in Denver, Colorado or attacked a squad car in Los Angeles, California?

2:38
These are big news. There are issues at stake here. But what do these mean to the business of the economy? Not much and nothing long term. We’ve had riots before. We’ve had social issues before. We’ve had, had everything before.

The stock market rises twice as often as it falls, as I’ve repeatedly emphasized, but even specifically through very similarly motivated riots, I suppose we could say, the stock market has risen.

Now, even pulling out farther from that for a bigger-picture look, the stock market itself has only a tenuous connection to the economy. By the time we get employment figures, or unemployment claims, by the time we see data from a month ago or two months ago, the stock market has already moved on. Now it might be going lower if it anticipates a recession, for example. It might be going higher if it anticipates a recovery. But there really isn’t the direct connection to the economy that the media frequently implies there to be.

3:40
Recently, and in this very specific case of the recovery that we are in, stocks are rising because there’s almost nowhere else to put your money and the economy is coming back.

It is coming back dramatically and we have a long way to go and stock investors who have been brave enough to get into stocks from the bottom in March are loving how much potential is left in this.

4:02
This is not about that big picture recovery. We have talked about that extensively: that it’s going on and will keep going on, that’s why oil and stock prices are rising, interest rates are dropping, and that continues fueling the fire under equities and commodities, etc. That macro theme remains.

4:22
Then the only question becomes during these riots, has the macro theme been changed by riots? No, not even coast-to-coast riots, not even riots in every major city. No.

As a matter of fact, I would submit that these riots are happening at a very good time — economically. I emphasize I’m not in favor of riots. I know you’re not either. But what I’m talking about here is that the economy was already pushed down.

It’s not a great depression. The economy was already paused, stores were already closed. So we are probably having less impact on economic projections from these riots at this time than we might have had if these riots had happened during a more elevated economic period.

Let’s say they’d happened in January or last December. Things are going along just fine, businesses are open. Let’s say it was the holiday shopping season when this happened, then we might see a quicker more direct impact on the stock market because investors would think, “Oh no, the retail sales season is being interrupted,” if it were December. Or, “As goes January so goes the year” — that myth might have taken over in January so people thought, “Ah, things are crashing now, Main Street is closing under the rocks and bricks and fires of these riots, so that’s going to be terrible.”

And that might have had a bigger impact, psychologically, on investors. In this case, come on, how much more depressed can sentiment be? Most people are still bearish on stocks.

You and I, as Kelly Letter Signal System followers, are much more bullish just by following the numbers and the reaction that we do, than almost all commentators out there. Most everybody thinks this is bad, it’s going to get worse.

Well, if so then insert the riots and it’s still bad, and I guess it already got worse so this is another reason to think it can only get better from here.

6:09
But to put a finer point on it, if you own a store in one of these urban areas that’s under attack right now, your store is closed, you might have it shuttered or boarded up or just closed, maybe your windows are exposed.

You don’t have any revenue going on. And now the mob shows up and smashes the storefront.

You have an insurance claim, you may have to go to the SBA for a distress loan, there may be some damage that you suffer, but you were already on pause. You were already without revenue. So there wasn’t a shocking interruption. There was yet another log on the fire, so to speak, maybe a little too sharp of a metaphor in this case, but you see what I mean? Business was already closed, now it’s, what, more closed? Not really. You can’t get more closed.

6:57
If ever there was a time to get help from the government, whether federal, state or local, this is it.

Banks and emergency lending have never been more open. Interest rates are so low.

So the the environment for businesses to recover from any kind of setback right now is pretty well primed. That’s why I say this may actually be a very good time for these riots to take place, whatever damage is going to be done by them to be done and then there will be the same recovery we were already on.

So I have a feeling, stock-market-wise, we’re doing this, we’re working our way higher. Boom, we’ve got the flames here. The country burns for a while, and then the stock market just keeps going along because this has nothing to do with Europe getting back on its feet, Asia getting back on its feet, oil demand rising, technology companies that have dominated dominating even more.

7:54
And as a matter of fact, on that tech point, what are these rioters using to broadcast their images, to show their videos, to put their voices out there? And what are other participants? I don’t think they’re opposers, really. But what is everybody using to communicate their views during this time? Technology, the same technology that helped us get through the shutdown.

You see where this is going. People are on social media, they’re on their tech devices, they are using that web of technologies and modern communication to get out their message, to coordinate and run the very riots that are taking place.

So there’s just no indication that this has any kind of long-term macro impact. Even in the micro economy of the corner store that might be affected by these riots, this is a great time to get economic relief because the country is set up and in the mood to provide such economic relief and sales were already paused.

8:53
All which is to say if you are following The Kelly Letter signal plans, or in the stock market in any other way, this has no bearing whatsoever on what you do.

If you’re following my Signal System plans you stay put till the end of this month when we follow the signal as usual. Riots, viruses, explodingly great business plans — all of it is just put into the hopper. Each of these is just a price pressure at the end of each quarter, the price pressures have all added up, the price has gone where it goes and we react appropriately.

9:25
That can be hard to remember during times when it’s this emotional, but I would submit that times like this are a wonderful opportunity to remind ourselves why we take our emotions out of these decisions.

It’s easy to look at images of buildings on fire and people being injured and policemen putting their lives on the line. All of it. Nobody likes to see this. You can look at that and you think, “Huh!” You kind of go into a survival mode and when you’re in survival mode you naturally want to protect things and what do you want to protect? Your money?

“Well, I don’t want to be exposed to crashing stocks at a time like this. The last thing I need is a depressed stock account.”

So you might be tempted to sell into safety and they’re even called safe havens, the flight to safety that takes place. It’s all emotionally driven. Times like this, you can rely on the mathematics of the signal plan to see that, well, nothing changes here.

And for all we know …

10:19
I don’t want to say this is going to be good for the market, but it’s just irrelevant to the market.

This is a pressure you don’t want to be involved with in any way. So set your emotions aside, financially. Do not take any action in your stock market or commodities portfolio because of these riots.

If you want to be involved some other way or have an opinion for some other matter, well, that’s your business. But stock-market-wise, leave this one alone.

Hope this helps. Stay safe and have a good week. Kelly Letter investors, I will see you on Sunday.


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Why Inverse ETFs Fail Over Long Time Frames

The Kelly Letter uses leveraged long ETFs in two of its plans.

Readers have asked whether inverse leveraged ETFs could work, too. The answer is no, because the market rises more often than it falls.

This 10-min discussion with charts covering three different time frames makes the case.


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How to Reduce Your Stock Market Stress

Transcript:

I’m Jason Kelly with The Kelly letter. Thanks for watching today.

I have noticed in my inbox and phone calls and other means of communicating with subscribers, that people still aren’t quite getting the spirit of my signal plans, which take away all stress from indecision in the market. I want to take you through how that works.

I think people understand by now that they cannot time the market perfectly. But what they don’t understand is that they’re going to keep trying until they offload the responsibility. Think of yourself, for example. Here we are at the end of April. The beginning of March, when the market started its waterfall cascade, how did you feel? Your first instinct as the market was crashing was probably not, “Wow, how much of this can I buy?” If it was your instinct, then congratulations, you probably don’t need to hear the rest of this. But maybe you do. Keep listening and you’ll see why.

0:54
When we did hit the bottom on March 23—a little earlier for some indexes, but March 23 basically—we started shooting higher. Every step of the way so far and even today, as I talk to you at the end of April, most of the pundits are saying it’s going to crash again, the economy’s shot, we can’t possibly go higher.

None of this is news to you, I’m guessing. You understand the pundits are wrong half the time, nobody can call the tops and bottoms.

What I’m emphasizing today is that you will keep trying to call tops and bottoms as long as you think it’s up to you to deploy your money on the schedule determined by your gut. Now, don’t run away from this, don’t think that you’re exempt from it because none of us, not one of us, is exempt from that instinct.

1:41
Until you completely offload the responsibility of calling when to get in the market and get out of the market, you will keep trying to do it yourself based on all the inputs you’ve received. And we all have more inputs now than ever before, which means analysis paralysis is around every corner for today’s investor.

2:00
Now, I’m not talking about traders. If you’re a day trader, you’re not interested in my program anyway. But if you’re a person who just wants long-term market beating performance with minimal stress, and no stress from indecision, then this philosophy is for you.

Let me take you through some steps to illustrate how this works, the difference between saying, “I don’t mind if I don’t get the exact bottom and I don’t mind if I get the exact top,” and “It’s not my responsibility anymore, I don’t know, the system does what it does and I just follow it and I know it works over time, so I don’t care anymore where the bottoms and tops fall.”

2:35
The Kelly Letter Sig System did not get the exact bottom on March 23. It came close—about a week later, not quite, it did make its call and bought at the end of the third—the first quarter, rather—and that was, that was excellent. The market’s up dramatically in April, so that’s been very good.

2:51
But people following the system didn’t try to call that; they weren’t thinking every drop down in March, “Is now the time to buy? Is now the time to buy? If it is the time to buy, how much? Do I move in a third of my total amount of capital that I intend to invest during this? One half? When do I invest the other remaining two thirds or one half?”

The decisions really never stop. Because if you’re approaching the market that way, you’re trying to decide on the way down, when you get back in; then you’re going to try to decide on the way back up when you get back out. Because who knows when it’s going to start going back down again? And then when it’s going to start going up.

Obviously, it just never ends. The market line is constantly moving. So, until you offload the responsibility of calling those inflection points from your plate, you’re going to keep trying to call them. It’s just instinct. I’ve got this much capital to invest. I want to do it at the right time. What is the right time?

3:50
Wrong.

When you give it up and give it over to the Signal System—another system could work, too, but the one I developed and the one I use is the Signal System, a quarterly system that moves money in and out of the market based only on price fluctuation, that’s it, price change only.

When the stock fund’s price is way down the signal is to buy more at the end of the quarter. When the stock fund price is way up, the system signals to sell off an amount of that at the end of a quarter. That’s it, there’s more to it but that’s the basic idea.

It’s prices down, buy; prices up, sell—which we all know to do but we cannot do trusting only instinct and inputs from wrong-half-the-time pundits.

So how does this differ, the philosophy, the mentality, the psychology, the emotions of going through the waterfall crash and the V spike?

I’ll tell you how. As the market’s crashing you think, “Hmm, I wonder how low it will be at the end of the month? Or you don’t think anything, maybe you just tune it out and watch what everybody’s saying, the screaming and running around, the gnashing of teeth, and everything that comes every time, ad nauseam and it will do so for the rest of your life.

5:02
At the end of the quarter, you run the signal, you buy the amount it signals, and it is proportional. That’s another way the responsibility is not yours. I am not deciding how much to move in at the end of March, the system is deciding based on how deep it is. In the case of this past March 2020, it was very deep and in most cases called for moving all money into stocks, which from the perspective of the end of April was a pretty darn good move to get, right?

And you didn’t have to make the call.

And here’s the other thing: The system says just make the market order on the opening Monday after the signal happens over the weekend. So you get the signal on Sunday morning when the letter comes out, for example, or if you run it yourself, and it’s a market order placed for Monday morning. We don’t care if it’s exactly the same as Friday’s close. We don’t care because the system can adjust one quarter later to you having paid more or less than the price you use to calculate—everything is automated.

5:58
Everything is proportional and the system self adjusts, which means you can just say, “Not my problem. I don’t know where the bottoms are, where the tops are, I don’t know where the next crash is or the next spike is. I just do not know, I do not care. I cannot know and that’s why I do not care. I’m going to put it all on this system.”

Which is how, when, oh my gosh, the system bought at the very top of the day when it opened and the security declined during the day, and oh my gosh, if I’d only waited till noon—all of that, gone. Gone. Signal System investors suffer none of that.

“Oh, that’s the price I got.” Fill in the cell in the spreadsheet, you’re done. A quarter later fill in the next price you get in the spreadsheet, you’re done. It even tells you what to do, how much to buy, how much to sell.

6:45
Now, the automation of this, you might think, “Well, I could do this on my own, mid-quarter, whenever I want. You know, based on the headlines I’m seeing.”

If you’re thinking that right now, you’re still missing the point. You really are. You’re not giving over all of this to the system.

When you do, you’ll hear this deep, abiding silence instead of this constant cacophony from the media.

Constant conflicting headlines, constant “What if? What if? What if?” Possibly the classic sleepless nights, possibly the distraction at parties. Whatever it is that eats at you, gnaws at you, hollows you out from the inside from the market, goes away.

Because whatever happens is no longer your fault. That’s key. How many times have you said, “Oh, if I just waited a day,” or “Ah, if I just waited an hour,” or “Dang, why did I set my limit order at $55 instead of $53? I thought for sure when it was at $55.15 it would drop down, ah I thought it would just go down a little bit and head right back up because it’s been going up.”

I’ve heard it all. I have heard it all. “I set my limit order at $10. And it got down to $10.09. And now it’s $20 and how could I have missed it?”

7:58
A. You’re going to miss fewer of those because the system just acts in a rote manner.

B. Whatever imperfections the system delivers are not your problem. They are not your fault.

It’s a calendar based, mathematically founded approach that absolves you of all responsibility. So, “not my fault” is a pretty high, pleasant privilege to have when you’re in the very uncertain business of calling stock prices, which you shouldn’t be in at all or you’ll have the same 50% mistake rate as your favorite or least favorite pundit on TV.

8:35
Consider it. I highly recommend it.

I cannot overstate how much my attitude, my demeanor, my outlook on life has improved when I took out the stress of the wiggling stock market line, automated it, have a higher profit now and don’t care even through major crashes like March 2020.

And if you are a long-term subscriber or somehow tune into what I have to say or write, you can remember this fact. You remember what I was like through the crash of March 2020, about like I am right now—these things don’t bother me. They’re just moving numbers. And when they’re down as deep as they were in March 2020, this system signals to buy, and anyone following it simply does it. And here at the end of April, they’re not saying, “Oh, why didn’t I buy?” because—guess what?—they did.

And let’s say, for example, the system didn’t run until the end of April. Let’s say it was running right now as I’m recording this at the end of April instead of the end of March. So the buy signal was coming one month after the bottom instead of right close to the bottom.

Even so the stress dissipates because the system wouldn’t signal to buy as much because prices aren’t as low.

And anyway, if the calendar based model had the signal coming down at the end of April, instead of March of the crash, it happened differently so that we were a month away from the bottom instead of right at the bottom, so what? This uncertainty is—listen to the word—uncertain.

We can’t know what’s going to happen, ever, so we stopped trying and the system does the best it can, and the system proves—not your responsibility, remember? The system proves, as it runs in its automated fashion, that close enough is good enough.

10:15
You might think that—you’ve heard me say it, you’ve read me write it—you might think, “Well, if I’m close enough, that’s good enough. I don’t have to kick myself for making mistakes.”

But you won’t forgive yourself. You are too hard on yourself. I’m too hard on myself. We’re all too hard on ourselves.

And if you buy just 5% off the bottom, you’ll think, “D’oh, if only I had been 18 hours later I could have got THE bottom.” You won’t tell yourself that close enough is good enough.

But you will say about an automated system, “Eh, big deal, it was off by a week, it was off by a month. Close enough is good enough. And anyway, it’s self modulating, so the price wasn’t as deep when it decided to buy and therefore it didn’t buy as much. That’s all the governor valve I need on this whole thing,” and your emotions are free to focus on other parts of your life, which is what you should be doing.

11:02
You will achieve a higher performance with lower stress with this plan.

Now, you’ve heard me say these things before, but what’s different about the message today is the importance of offloading the responsibility of calling these turns.

Even if you move gradually or dollar-cost average—that’s one way of moving gradually—but if you move in a different way of moving gradually, that’s all very prudent, good risk management, smart, wise, but you are still involved. It’s still you, you, you.

When you offload the responsibility to a system that proves to you that close enough is good enough—poof—the onus is off of you, performance is up, and you’re a lot calmer, happier investor, which is why you will not puke at the bottom like so many did on March 23.

11:51
I hope this helps and you really should give it some thought. Take a look at the charts on jasonkelly.com. See if that would make a difference in your life. I believe it would.

It certainly has in mine. Thank you.


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Opportunity Abides

Dennis asked:

Where is our government getting all of this money it is giving to my neighbors and me? Am I right in assuming that the government is just printing, printing, printing more money to throw at the country to stimulate our economy? If so:

  • What is going to happen to our economy in the near future?
  • How bad economically could it really get for us?
  • How do you see the next 12-24 months?
  • President Trump says that things are going to come back bigger and better than ever. Do you believe this?

Yes, the government is spending like there is no tomorrow even though there is a tomorrow and it will include the knock-on effects of higher government debt and a bigger Federal Reserve balance sheet.

It is impossible to know what consequences the supportive policy will create in the future. However, we heard similar questions and warnings back in 2008 when the Federal Reserve and government intervened. We were told the dollar would collapse, hyperinflation would set in, and Washington would go bankrupt.

These bearish forecasts were wrong. The current repeat of the same warnings could be wrong, too.

What-iffing in an ominous tone is easy to do. What if this, what if that, has been going on since the beginning of mass media, through which the stock market has risen two thirds of the time. I bet it will keep doing so.

I suspect that the reopening of the economy is going to go better than people fear. Expectations are so low that there is almost no way to disappoint. Perhaps small-business help will actually get to small businesses. That would be a positive surprise, and change of pace. Maybe companies will report more than zero earnings. That would be positive as well.

To Dennis’s first three questions, the only honest answer is that nobody knows. I believe the economy will muddle higher, that businesses will reopen, and that they will need employees. These factors will improve reports.

As for the next 12-24 months, well, why not the next 5-17 months, or 9.5-27.3 months? Time frames are arbitrary. Beats me, beats you, and beats every pundit. There will be a muddle higher over a not-as-long-as-you-think time frame. That’s my take. I don’t know how many months.

But you know what? I don’t need to know in order to confidently buy cheap stock prices. That’s the business we’re in around here, and this is as simple as it gets:

  • You know the economy will recover.
  • You know stocks will go higher.
  • You do not know when, and cannot know when.
  • You know that if you wait for better data, you will miss the stock recovery.

I submit that, therefore, it is best to continue our quarterly plans that have done such a good job navigating thus far, or engage in some other form of gradually putting money into stocks

What else would you do? Avoid stocks at cheap prices so you can kick yourself later?

Dennis’s last question was:

President Trump says that things are going to come back bigger and better than ever. Do you believe this?

It’s a loaded question with “Trump” thrown in there. It’s irrelevant what Trump or another person says about the economy. Who cares? Dennis could have plugged in any other name and my answer would be the same. “Trump says…” or “Jim Cramer says…” or even “Lady Gaga says…” — whatever.

Unload the baggage of “Trump says…” and the question becomes merely:

Do you think things are going to come back bigger and better than ever?

Answer: Of course! Haven’t they always? Humanity will get through this, life will resume, and we will look back on this the same way we look back on subprime, 9/11, the dot com collapse, and every other historical incident.

I could quote a collection of economists here, but why? They’re z-vals, arguing over arbitrary time frames and other irrelevant details.

Your job as an investor is to keep your eye on the ball of growing your portfolio balance. This is not the place for worldviews or big-picture guessing games. Leave that to the people who suffer no accountability for their 50% mistake rates.

All you need to know now is that the US Treasury and Federal Reserve want to keep the financial markets intact — and stock prices heading higher. Let them sort out future consequences. They did a darned good job of it last time, unlike bearish pundits. Side with the profiteers this time.

Like the chart at the top asks: How much of the recovery are you willing to miss?

Posted in US Economy | 5 Responses
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