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Dear Reader, update
Eoin Treacy here with a quick market update.
Let me start by saying the next Payday Window opens soon. You should expect the trade details Monday evening, with the intention of opening the trade first thing Tuesday morning.
The strategy’s worked out great so far, as our first two trades were closed at 27% and 177% respectively.
As a quick reminder, the Payday Trade approach is a long strategy where we strategically position ourselves in SPY call options during periods where paychecks hit American workers’ pockets. When this happens, a portion of those earnings goes to 401(k) accounts, which largely invest in index funds like the S&P 500. Over time, these 401(k) flows contribute to a tradable bullish bias in the market. (See our announcement post for a full breakdown.)
Of course, the strategy works best when the market’s bullish for other reasons aside from this. And right now, we have quite a few reasons to be bullish…
- President Biden announced this week that every adult in the USA will be eligible to get a vaccine within the next two weeks.
That’s a significant acceleration in the rollout of vaccines. (The previous deadline was the beginning of May.) It’s great news for consumers and brings forward the date when the whole economy can fully open up.
But with such good news, why have jobless claims risen over the last two consecutive weeks? After all, with such a positive outlook for reopening, it’s reasonable to expect businesses are more interested in hiring than firing.
Everything I’ve seen traveling around Los Angeles and Dallas over the last month suggests companies are being cautious about hiring. They don’t want to take on workers until they have to.
Customers are still willing to accept that it’s difficult to provide full service while some form of social distancing is being practiced. That means companies are under less pressure to rush back to full service even as business recovers. The simple fact is that customers are not yet as demanding as they were before the pandemic, so companies can get by with fewer workers – for now.
The challenge for any company right now is to avoid being responsible for an excess workforce if there is another lockdown. That suggests they’ll only bring employees back full-time when they have clear visibility on what risks they face. Right now, with vaccines still rolling out and only about 20% of the U.S. vaccinated, it’s too early to bring businesses and employment back to full capacity.
- The last Federal Reserve meeting also confirmed they do not expect to raise rates any anytime soon.
That decision is influenced by the fact that the unemployment rate is still high and large numbers of poorer people are still out of work.
But there’s another reason the Fed isn’t in a hurry to raise rates… In fact, there’s one big unanswered question for the economy which we’re far from answering: What are they going to do with the millions of people who are way behind on their mortgages and rent?
The moratorium on evictions was stretched out to the end of June when the latest stimulus was announced. There’s no political will to deal with this issue. But whenever the economy fully opens up, there will be less reason to continue with the ban on evicting people. That’s going to be a major source of social discontent in the third quarter, so there’s no chance the Fed is going to raise rates.
The primary result of that is asset prices continue to move higher. The longer we go with outsized stimulus and low interest rates, the higher stock prices will move.
That’s good news for the Payday Strategy. The people who were least affected by the pandemic are the most likely to have pensions. They continue to see their incomes improve. And as the economy opens back up, they’ll also begin to spend more.
As a quick anecdotal note, I’ve eaten out at a restaurant every day for the last three weeks. The wait staff I talked to told me that the average bill has increased because people just want to have a good time. That’s great for businesses and is an additional stimulative measure for the economy.
We made 177% on the last Payday Window. The beginning of the new quarter brought a surge of new money into the market, so we were in the right place at the right time. That’s exactly how this strategy is supposed to work.
Please keep in mind that not every window will be this profitable. But over time, the gains add up. And with this strategy, you have the opportunity to beat the market by trading less than half the time.
Like I said, the next window will open on Tuesday morning. I’ll be in contact again on Monday evening with the option to buy.
All the best,
Eoin Treacy