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Jim Rickards, Saudi Arabia, and the “Great Currency Shock of 2016”

What was Rickards pitching this week for his Currency Wars Alert?

By Travis Johnson, Stock Gumshoe, January 20, 2016

I’m absolutely sure that Jim Rickards knows a lot more about the global political economy and currency fluctuation than I do, so I’ll give you that point right up front.

That doesn’t necessarily mean he’s going to be able to make you a lot of money, or that the promises he uses to sell his trading service will come true.

Richards’ Currency Wars Alert and IMPACT System have been very, very heavily promoted in the past year or so by his publisher (Agora), and I haven’t written about him… so I guess it’s time to get around to it.

Why now? Well, partly because he’s had some time to be both right and wrong in his trade recommendations, so our readers who have tried the service out may be able to provide some feedback (is that you? Use the comment box at the bottom, please!) … and partly because his latest big sales push with a “live video event” earlier in the week promoted one specific “secret” trade, so there’s at least one teased idea of his that I can explain for you.

Generally, Rickards is predicting a US recession — caused by the Federal Reserve tightening during a time of weakness… but while that means he says he wouldn’t own US stocks right now, he says he does see opportunities to make money by buying options to leverage his insight into global currency trends.

The basic spiel for this next “currency shock” that he thinks you can profit from is about Saudi Arabia — he says that there have been two big “Currency Shocks” recently from overnight currency revaluations, the first one being the Swiss Franc’s decoupling from the Euro about a year ago (the second was the bump down in the Chinese Yuan, though that’s still underway and it wasn’t just a one-time thing like the Franc)…. and that the next one will be the Saudis removing their currency’s peg to the US Dollar, all of which are little salvos in the “currency war” that he says has been going on around the world since 2010.

This would cause a drop in the value of Saudi businesses, at least in US Dollar terms, so should bring down the value of the Saudi stock market… but, unfortunately, Rickards says there isn’t an easy and liquid way for individual investors to bet against the Saudi currency or stock market, so he has found what he thinks is a very good proxy: Turkey.

His argument, based on his analysis of the past and his expectations about how the dynamics will work in the region, is that a Saudi de-peg will cause the other governments in the region to also bring down the value of their currencies, and that Turkey — with lots of pressures on it from all sides — will be the largest and most liquid market to suffer as a result.

So he’s recommending a bet against Turkey’s market, and since he only recommends buying options in his newsletter/trading service, that means he’s buying puts on a Turkish ETF.

There’s really only one of those, particularly if you want options and liquidity, and that’s the iShares Turkey index ETF, ticker TUR.

Turkey’s market is cheap by most standard valuation metrics (PE of 8, for example), but has also fallen by more than 40% over the past year and is obviously a risky market for geopolitical reasons — if you shoot down a Russian jet and have ISIS and independence-seeking Kurds on your doorstep, let alone a flood of refugees and a perilous connection to the Euro, risks are high and unpredictable. So it makes sense that it’s cheap. Turkey is going to have a slowing economy for quite a while thanks partly to war and refugees cutting into tourism and, like many emerging markets, is beaten down.

Whether the Turkish market will fall further if the Saudi’s depeg their currency from the US Dollar, I have no idea.

The one Saudi Arabian ETF has fallen more or less in line with most other emerging markets ETFs (including TUR), but it has only existed for a couple months (and has no options trading, in case you’re wondering). I also checked with a couple of my brokers, and there are no shares of the Saudi ETF available to sell short… so, surprise surprise, lots of other folks have figured out that the Saudi economy is going to pay a price for their intentional flooding of the global oil market and the crash in oil prices. (That doesn’t necessarily mean a lot of people are shorting the ETF, it has very low liquidity and very few shares outstanding so it might just be too small to have many shares available to short — but I would assume that there’s far more demand to short that ETF now than there is to go long the ETF, it has fallen 20% this year and a bit more than that since it was launched last Fall.)

So, assuming you believe Rickards is right that the Saudi currency is going to be depegged from the dollar “any day now,” what would the investment be? He continually says that it could happen tomorrow, which is why you need to get in on this trade immediately (you won’t be able to after the depeg has alraady happened), but also allows as to how there’s no real certainty, he says it might take them two months or six months to get to that point. So I’m going to assume that he would want to have as much flexibility as possible, which means buying options out more than just a month or two… which probably means he would want to recommend buying puts on the TUR with an August 19 expiration, giving his prediction eight months to come true (there’s also a May 20 expiration, which he might be using as well — February seems way too early, that gives only four weeks to be “right”).

If you’re convinced, as Rickards is, that this will happen, then you would buy puts on the TUR — that means you’re entering into a contract that gives you the option (but not the obligation, that’s why they’re called options — buying them gives you an option, selling them gives you an obligation) to sell TUR at a certain price before the expiration date.

If you haven’t traded options before, it’s not all that complicated — buying a put option means you want the right to sell a stock at a set price in the future, you would buy that option because you think the stock (or ETF, in this case) will be below that price by the time the contract expires. Buying call options is just the reverse, you want the right to buy at a set price in the future, because you think the stock will be above that price. Strike prices that are ‘in the money’ are contracts that would be worth something today — ie, since TUR is at $34 now, the February put option with a $40 strike price is “in the money” and worth at least $6, since you could buy that option now and exercise it to sell TUR at $40. It’s actually trading at about $7, which means someone’s willing to pay an additional dollar over the $6 as a bet that it will fall a bit more over the next month… and the month before February expirations represents not just possible upside, it’s also possible downside — if TUR rises to $36 over the next few weeks, maybe that option is only worth $3 or $4, or if it does rise to $40 the option is essentially worthless (if anyone can sell TUR for $40 because that’s the current market price, no one will want to pay extra for the privilege of doing so).

And you don’t have to own TUR shares to “sell” it at the expiration date, the option to force someone else to effectively buy TUR from you at a set price has value without you actually owning the underlying equity to begin with, you would probably just sell the option back to close the contract when it hits your profitability level (assuming you’re right about which direction the price goes), you don’t actually have to buy TUR and then sell it to someone. Most options are not actually exercised, they’re just bought and sold to open and close the contracts.

So which combination of expiration date and strike price might Rickards be recommending? Well, as I look at them I don’t see many that are particularly compelling in terms of their trading volume (the number of contracts that have been traded today) or open interest (the number of contracts that currently exist), but there are a few possibilities…

May expiration:
May $35 puts (TUR160520P00035000) — open interest over 4,500 contracts, current price about $5
May $39 puts (TUR160520P00039000) — open interest over 4,000 contracts, current price about $7

August expiration:
August $32 puts (TUR160819P00032000) — open interest over 5,000 contracts, current price about $5

I don’t know what the trading volume might have been on those contracts on the day Rickards made his recommendation — not sure what day that was, frankly, but his big live video presentation that I watched which touted this pick, and which drove a lot of questions our way, was on Monday night this week (and he was apparently presenting from his house near the French King Rock here in Western MA, which is just a few miles a way from me — maybe I should go knock on his door). Today the trading volume so far on the August $32 puts is over 500 contracts, and that’s more than 5X the volume of any other contract in the options chain for TUR, so I’ll guess that this is the current recommendation from Rickards.

[Correction: check the comments at the end, I failed to look at a second source for available contracts, and the pick was almost certainly actually the August $30 puts that weren’t quoted in the first place I checked, not the $32s — TUR160819P00030000 has open interest around 7,000 contracts, huge volume of 4,000, priced around $4 currently… and obviously requires the underlying ETF to fall two dollars further, but costs a buck less than the $32s]

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How would such a trade work out? Well, you pay the $5 per share up front to open the contract and buy your option — each contract represents 100 shares, so for one options contract you’d pay about $500 plus commissions (a little higher than stock trading commissions from most brokers, but shouldn’t be a lot higher). That would give you the right to sell 100 shares of TUR at $32 a share anytime between now and August 20, when the option expires. If those options were expiring today they’d be worthless (since the underlying ETF is at $34), so you’re buying just “time value” and hoping that the price moves down.

If TUR is at $32 or above all the way from here into August, and never drops meaningfully below that to give you a profit that you could jump on along the way, you’d lose your money. All of it. The option would be worthless.

If TUR drops by, say, 50% between now and August and is trading at $17, you start to see some real profit — your options contract means can sell 100 shares for $3,200 but those shares would only cost you $1,700 in the open market, so the profit is $1,500. Since you put up $500, you’ve made a 200% return and tripled your investment.

If things are much more cataclysmic and TUR falls to, say, $10 from the current $34, you’ll be cackling with delight as you cash in your $2,200, a $1,700 profit on top of the $500 you invested (a return of 340%). I assume that a minimum of a 50-60% drop in the value of the Turkish stock market is what Rickards is looking for, since that’s what would give the potential for a 300% gain on that options position. (TUR is already down about 50% over the past year, just FYI — the new Saudi ETF KSA has moved generally in the same trend as TUR but is down much more in its young life, it’s down 21% over the last four months while TUR is down 7%.)

That’s the kind of returns Rickards is looking for — big, several hundred percent gains over less than a year as currencies make big moves (and the equities or ETFs that are levered to those currencies make even bigger moves). I don’t know how frequently he picks right with these trades, but he says he sends out a new alert every two weeks and that he has booked big gains of 100% or more on a few of them over the past year, including some big gains recently. Not once in the ad presentation did I hear them say “100% losses”, though they did admit to not being right every time — and if you’re not right when you’re speculating on options, you’re likely to see quite a few 100% losses from options that expire worthless, or that crash in value if a bunch of newsletter subscribers are all trying to sell at once.

Here are some other notes that I jotted down as I was listening to his presentation:

He says that there are always ways to make money, including selling options or shorting stocks, but that he likes to buy options because he’s betting that things are extreme and will get more extreme (selling options, on the other hand, is betting against volatility — betting that things will stay normal). And he says he’s only recommending buying options when there’s a strong possibility of large gains (200%+).

He also noted that they have current open positions with 60, 80, 100% gains, and that they have recently booked big gains of 100% on puts on Goldman Sachs and an emerging markets ETF.

His assumption is that there will be more big opportunities coming because of the flaws in the Black-Scholes model that’s used on Wall Street for calculating the value of options. He thinks Black-Scholes underestimates “black swan” or “avalanche” shocks, assumes they don’t happen, and it assumes that the price adjusts gradually as events hit the underlying security — but that’s not the case, the world is more volatile and you want to buy to benefit from those big jumps if you can predict them.

Rickards says that this “break” of the Saudi Riyal with the US dollar would happen tomorrow, or in two months or in six months. You can see it coming analytically, but you can’t be sure of the timing so you have to be positioned in advance.

And, of course, he says that he likes buying put options because it gives you a lot of upside but very limited downside.

My thoughts?

If you do this kind of trading, keep in mind that “limited downside” just means your loss on any trade is capped at 100% of whatever you put in… which means you have to be mindful of the amount of money you’re putting at risk. The outsize gains come at risk of outsize losses — there will be some 100%-500% gains if they pick the direction and timing right, but there will also probably be a substantial number of trades that result in 100% losses (or close to that). You can’t lose more than 100% if you’re only buying options, so that’s good (your downside is theoretically unlimited if you short a stock or ETF instead of just buying a put option, if it goes soaring you could be on the hook for 10X what you thought you were risking), but the 100% losses can come with some regularity — partly because we’re talking about short time periods of often less than six months, and partly because these are to a large extent “all or nothing” trades made largely based on the analysis of a single person (a person who has, in the past, been wrong about short-term movements in currencies and markets, just like any other person will be).

Which doesn’t mean I’m saying Jim Rickards isn’t smart, or that he doesn’t have intelligent insights into global trends, or that he doesn’t have good, quantitative systems that help him make forecasts. I’ve read some of his stuff, and it’s interesting, and he’s probably often right about currency trends. I just don’t know if he’s got a particular gift for consistently winning long-term 4-8 month options trades — I’m skeptical that anyone can turn broad market insight and analysis of global currencies into consistent wins on leveraged trades.

So keep that leverage in mind when doing position sizing — if you’re only willing to lose 25% of some chunk of money, for example, then only use 25% of that money to buy speculative call or put options and leave the rest in cash or something similarly “safe.” If you’ve got $100,000 but only willing to permanently lose $10,000 of it, then only bet $10,000 on buying put or call options. Stop losses don’t work very well on options, particularly if they’re volatile picks and are “out of the money” — in some cases you can hedge these kinds of options trades, either by placing a simultaneous call option to reduce your downside if you’re wrong, or selling a further-down strike price contract to reduce your cost, but those are also expensive and cap at least some of the potential for windfall gains…. and my expectation is that a successful options speculation portfolio relies on occasional windfall gains to offset lots of substantial losses.

Which is a long way of saying that position sizing is a big deal, and it’s why you should never compare the returns of options trading with the returns on a non-leveraged equity investment — mostly because you’d be crazy to put the same amount of money at risk.

If you make five of the trades recommended by a service like this in the course of a year, at, say, $2,000 a pop, then there is a nontrivial chance that you could lose all $10,000 if Rickards (or some other service) is wrong about the timing or the size of the movement in the underlying stock or ETF. And yes, even if the logic is sound and the quantitative analysis is correct and the position is well-argued, any service is going to be wrong with some regularity if they’re buying options and shooting for 200%+ gains with every trade.

If you have just a couple trades out of those five that give you a 100% loss in expiring worthless, as I would expect happens several times a year for any such trading service, then remember those pesky rules of math: a 50% loss can only be recovered by a 100% gain. Imagine that you have five $2,000 speculations — two of them expire worthless, so that’s a $4,000 loss. The other three, that $6,000, have to show gains of 60% on average just to break even. To get an overall gain of 100% from your $10,000 initial investment, the pressure is on — those remaining three trades would have to average well over 200% gains.

I don’t know what Rickards’ batting average is, or what the record of the service might be (there’s been quite a lot of discussion of the service among our readers here, but I’ve never seen the actual numbers of his historical trading recommendations over the past couple years), so I’m only guessing that a 40% failure rate is not out of line with what some of his readers might see. I could be way off.

So there you have it — Rickards this week has been recommending puts on the Turkish ETF TUR, I think he’s probably recommending August $32 TUR puts in the $5 neighborhood, and, well, that’s all I’ve got. Now I’ll open it up to the rest of you: Any experience with Rickards and his Currency Wars Alert? Any other thoughts on this kind of options buying strategy? Let us know with a comment below.

P.S. On the broader Saudi Arabia/Turkish front, those are certainly hotly debated topics — Barron’s has done a pretty good job of summing up the issues for Turkey’s economy, and there are plenty of people who argue that the Saudi’s will hold firm to their currency peg and remain tied to the US dollar for both strategic and economic reasons. Rickards noted as much in his presentation, saying that the same folks thought the Bank of England would hold firm to the Pound’s value under assault from George Soros et al 25 years ago, too, but they eventually had to cave before they spent all their reserves propping up the currency… and the Saudis will do the same. I don’t know if the comparison will hold true, but there are certainly folks arguing on both sides — though the contrarian bet is probably to go long Saudi Arabia or Turkey right now, so note that it’s what they call a “crowded trade”… which doesn’t mean it won’t work, but might mean that it’s somewhat expensive since few folks are inclined to bet against you.

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RPaul
Irregular
January 20, 2016 5:07 pm

TUR is indeed the put option offered. Suggestion was to purchase the Aug 30 strike at a price no higher than $4.40. When the market opened, the price was $3.50 but the $32 strike–with 4,500 contracts already outstanding–was $4.00 so I bought those, figuring if the de-peg does occur and the TUR price does fall to $23 as “predicted”, I could net an extra $1.50 per. If it would close at zero, my loss would only be .50 more.
We shall see what we shall see. Of course, I also dropped $50 on the 1.6 billion lottery!

Hope this helps.

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backoffice
Irregular
January 23, 2016 11:03 pm

I also bought into his presentation at a very low price, money back if not satisfied etc. Saudi’s will de-peg because Obama stabbed them in the back by giving Iran recognition and 100 billion dollars. If memory serves me correctly Rickards was pushing his services with others before angora. He replayed up the fact that Iran and the Saudi’s are mortal enemies and have formed a crescent that basically can cut off Saudi Arabia. When and he finally got around to buying put options in Turkey he didn’t give any one in particular except to mention that they were in the $2.00 range. I called for verification on what to buy and was told I would have to pay a $1,750.00 sign up fee of which I declined. If anyone has some knowledge I’d appreciate it as I’m leaning towards the August 32 options. I’m a virgin in these deals so I can use all the help I can get.

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Patricia
January 20, 2016 5:08 pm

This is the best explanation of options trading, and it’s risks/rewards, that I’ve ever seen. You’re a natural teacher Travis. Since I’m not rich I don’t gamble in this way; there’s a casino a few miles away if ever I get a strong urge.

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sprucegum
Member
sprucegum
January 20, 2016 5:21 pm

He also mentioned 43k attendees so there is a rush impact on these kinds of recos.
I have only this year been following JGR invest newsletter. He admits he’s a macro guy and investment recos come from others working with him.
I did the GM put and lost 70%USD. I liked the reco on GM and didn’t follow the sell reco (Sell to close) and held on bringing up from 90% loss. It would be even better today if the clock had not run out.
My feeling is his maco is excellent but translating into consistent winners, especially on the timing of options takes longer to realize. His newest pitch Kissinger’s Cross looks to address that … I’d like someone to let us know how that works out?
Given that most of the recos are currently puts I’m thinking they may take longer that expected since the survival instinct can push the effects of macro changes.

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JohnE
Member
January 20, 2016 6:15 pm
Reply to  sprucegum

The Kissinger cross sounds like Kieth Fitzgerald’s High Velocity Profits. I canceled that one considering it a total loss of $1,950. So I too would like to hear how the KC works out.

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Paul Bormann
Guest
January 20, 2016 7:36 pm
Reply to  JohnE

I’ve been a Rickards Intelligence Triggers (the Kissinger Cross method) member for just two months now. So far, he has booked two winners and two losers. The losers were reco’s from before I joined, one winner I did participate in. However, my results were a 77% gain (67% after commissions), not the 118% he claimed, since I did not get in at the same price. Options can change in price very quickly, if you don’t see and respond as soon as issued, you may buy at a higher price or sell at a lower one. But sometimes it pays to wait like his most recent reco on RGLD for a two year out leap option. It has dropped about 20% in just the last 3 days since he gave it. All his call options recos are in the red, one heading to zero fast, still no sell reco from them. (I don’t own that one, I’m not going long on anything right now except gold miners.)
So, at this early juncture, I don’t see Intelligence Triggers being a great deal better than other option trading services. Time will tell…

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GP
Guest
GP
January 20, 2016 7:29 pm
Reply to  sprucegum

I lost on the GM account as well but then went back in on my own when I played some short term PUTS against them. My net loss when all was said and done was a modest 20%. If we had stayed in a few weeks longer we would have seen that stock drop below $30.

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leahcim
Member
leahcim
January 20, 2016 5:34 pm

Thank you Travis for your fine explanation. I too saw the video being offered by Agora Financial. With everyone from Harry Dent to Larry Edelson pushing very expensive financial services with very different view points is perplexing, so, having someone like you to help out the penny ante players like most of us is very helpful, As we approach retirement age it is very difficult these days to preserve our savings and even harder to build it through investments, especially when these financial services are asking several thousands of dollars just to get started.

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Paul Bormann
Guest
January 20, 2016 7:13 pm
Reply to  leahcim

After buying many of these high priced publications over the last 12 years I can tell you, they all give high risk recommendations that seldom work out. I have lost $ on every one of them. Now I stick with the $99 or less letters that generally give more conservative reco’s with larger market caps that won’t be easily moved by the letter’s buy or sell reco’s. I have been getting Larry Edelson’s Real Wealth Report for several years, and based on his low win rate with that letter I would NEVER pay $4-5k in advance for a 5 yr. subscription to anything he sells. He says he has 18-20% win rate on his OPEN positions. That is probably true. Sounds good until you realize that eliminates all his stoped out and closed losing trades from the equation, which would make it a seriously negative %.That’s like bragging that your baseball team scored 12 runs in a game while not mentioning the other team scored 18!

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cornbread329
Member
cornbread329
January 20, 2016 7:40 pm
Reply to  Paul Bormann

I agree. I had a free2 month trial period with one of Nick Hodges many different newsletters and I canceled after it expired because nothing he said was close to coming to fruition. I did however pay for a subscription to The Crows Nest from Jimmy Mengal. I believe it cost $59 1st year and I purchased 2 additional years for $35 each. The information has been very credible and his research is thorough. He primarily suggests DRIP accounts and dividend stocks, also his entry and exit points have been well timed on his short term investment plays.

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Bill
Member
Bill
February 2, 2016 2:14 pm
Reply to  leahcim

I totally concur, Travis is doing a good thing. I’ve been getting Rickards emails for several months now but never really paid a lot of attn, now having read Travis’s summary/opinion, it puts all of it into a much better perspective. — Bill S. Colorado

backoffice
Irregular
April 6, 2016 9:05 am
Reply to  Bill

I’ve been getting Riskards doomsday writing and currency recommendations for awhile know (a-lot) has he even been remotely right on any of his latest calls. Thanks Travis

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Island Trader
Member
Island Trader
January 20, 2016 5:42 pm

Travis, this is just an outstanding summary you wrote here today. Impressive as to how you covered all the main points about speculating using Put Options.

I also figured out very quickly what the trade was. All I had to do was Google the Turkey ETF and voila, up popped the symbol. he gave everything else away, so he should have simply said what it was and gain the goodwill and attract interested clients to his IMPACT system.

I have read two of Rickards books, namely Currency Wars and The Death of Money. The man knows what he is talking about and I would highly recommend reading them in that order. If we ware going to bet on currency movements, not the currencies themselves, I would attach my wagon to Rickards.

I looked at the options the next morning. The May $34.00 option was trading at $2.40. By the end of the day, it was trading at Bid $2.85. By this afternoon, it was Bid at $3.90. So, the option has risen $1.50 even though the stock price has only moved down about $0.20.

So, to break even on this trade, the stock needs to drop about $4.00 to $30.00. To make 100% on your investment, the stock needs to drop an additional $4.00 to $26.00. That is a lot of risk being taken on given that as you say, the index is trading at a low 8X P/E.

I just don’t see this option being a good deal at this price. I should note that the asking price in the first morning was $3.50, a huge spread given the bid was only $2.40. Who knows what I would have paid.

So in my mind, the option prices at various strike prices have become too elevated to consider at this time. Perhaps they will come back down after a few days and one can reconsider.

Hope that helps your readers.

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Fabian
Fabian
January 20, 2016 6:00 pm
Reply to  Island Trader

You show exactly what the problem is with these options’ letters. No matter what the quality of the reco, when a bunch of subscribers jump in, the price quickly get distorted in favour of the market maker (they know what they are doing) and you’re right away at a disadvantage. Furthermore, the letter’s promoter shows the price at reco’s time, so his or her performance always looks better than what you’ll ever get.
But Rickard’s books are excellent at explaining the monetary system and not boring at all, which, given the dryness of the subject, is a small feast.

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Bernie
Bernie
January 20, 2016 10:54 pm
Reply to  Island Trader

Never put in a market order when buying options. With the wide spreads between the bid and asking price, a reasonable limit order will likely get you a fill. If you miss it, there is always another opportunity around the corner.

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zach
Guest
zach
January 20, 2016 5:55 pm

I’m glad you got to the a”Rickards” newletters…I made the mistake of signing up for the trial of the newsletter and it was a disaster. Over six weeks I received hundreds if not thousands of spam or advertising to subscribe to additional letters or services. 2 trades were recommended over that period and both losers. I’m sure Mr. Rickards is brilliant but as you said that does not always translate into trading sucess.

Dutch
Guest
Dutch
April 11, 2017 10:28 pm
Reply to  zach

I bought “The Death of money” and got screwed. Here’s how. There were 2 selections on the website buy the book or buy the book and subscribe to the service. With great care I selected to buy the book and not the service. I was charged for the service and the service fee was collected from my account MONTHLY!. Ultimately, I had to cancel the credit card to stop these charges! This blatant ripoff was the death of MY money and a ding on my credit report. This guy’s latest prediction is another scare tactic. Another call for the dollar to collapse when the IMF next convenes to reduce the US veto power. If this were true, who is going to take the baton? China with it’s non free traded currency? Russia with it’s shallow production and capital bases? He certainly has an appetite for the dying dollar for a guy who is calling for it’s demise. I get the sense that the only thing this guy likes about the US is the dollar. He does not seem overly found of this country. I have listened to guys like this for decades eagerly calling for the fall of the US empire. It seems as if people who call the US an Empire are people with a chip on their shoulder concerning the good ol’ US of A.

What do you get for you money anyhow? I’ll tell you right here for free. Recommendations to buy gold and how to buy gold (use cash and buy junk silver from a gold/silver dealer – no kidding?) and where to store the it (at you grandmas house and not a safe deposit box). Recommendations to buy farm land, to buy art to sell the SP500 to move money offshore. Buying farm land is very tricky as there are many pitfalls and encumbrances that range from water rights to vermin and noxious weed infestation and depleted top soil not to mention how a city boy climbs the enormous learning curve needed to make a farm actually produce (he says hire somebody to do this – oh sure). Buying art is even more complicated. Experts with years of experience and degrees in art history fail at this. Also the overhead and expertise required to store this is expensive. Move money offshore, really? Who is his target audience here? Fortune 500 CEOs? Tax Lawyers?

He did recommend an physical gold ETF — ounz –. This may be a good move if the gold bears are wrong. If the gold bears are right, vis a vis H. Dent (sheesh) and they have very good arguments too, then you’re screwed again as this fund is shallow. Also, I saw ounz featured in a yahoo finance news article that I did not have to get burned to find. I’ve not done a lot of research on ounz, but I imagine it would be impossible to collect the bullion if the whole financial infrastructure collapses in on itself. What are you going to do, call customer support or hire a lawyer?

Bottom line is that people who know the market’s direction with such precision don’t EVER tell you how to do it, not for love or money. They hold their cards close to their chest and make their fortune. Period.

So there is my rant. I hope this helps.

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JohnE
Member
January 20, 2016 5:57 pm

As a subscriber to “a number of his subscriptions”. I think Jim is being promoted as far more accurate than he really is. Yes, there are and have been some 80% – 100% gains. But there are as many losers as there are winners.
In last 12 months, looking at closed positions on one of his newsletters, there are 7 winners averaging a hair over 100% gains (1 at 230 and another at 200). There are also 14 losers averaging 76% losses (none over 100% but 6 in the 90s% range. In Dec last year he said to sell a put on EWY Korean ETF which was a 76% loss. I held on till a day before expression and made over 75% profit. (But I also make some bad decisions too)
Personally I like Jim and his discussions about the market and the picks he offers. But he is promoted as far more successful than he really is, that is all I am saying.

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FretlessB
Member
FretlessB
January 20, 2016 5:59 pm

Glad you did a thing on Rickards. I am subscribed, but still in my 60 day grace period and will most likely cancel. As you’ve stated, options are very risky, so of course you can have huge gains, but you can also easily lose 100%. I did a quick backtest of Rickards closed positions from IMPACT and found that if you put roughly $2000 capital into play for each rec, you would have lost around 19%! His currently open positions are doing much better (positive by about 10%, but of course that changes minute-by-minute). Separately, Agora also likes to talk about generating “instant income”, which is just their way of talking about selling puts (which of course either have to cash secured or margined, but they never talk about that). I do subscribe to Stockman’s Bubble Finance Trader and so far that has been excellent. We’ll see if he can keep it up, even when the market eventually turns.

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macavity
Member
macavity
April 14, 2016 1:40 pm
Reply to  FretlessB

Thanks for the back test info. Details like that are important!

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JohnE
Member
January 20, 2016 6:04 pm

One more comment … Like Island trader I also read the same 2 books, in that order. They are excellent books and showcase Jim’s knowledge and experience in global financial markets. I could not agree more with Island trader on that point….

Wolfgang Wiebach
Guest
January 20, 2016 7:30 pm

It was clear that the Swiss central bank would be swamped with unwanted Euros after they instituted the peg (only 2 years before they broke it!) – but where in the world are the Riyals that could make much of a dent into the remaining 3 trillion USD of the Saudis? And who in the world owns Saudi companies whose $-value would suffer if the peg were broken? So, why would the Riyals’ break with the dollar be such a big deal, and why would the Saudis do it?

Bryan J.
Member
Bryan J.
January 20, 2016 8:05 pm

I don’t know about the 3 trillion you speak of. What I read is they have 650 billion and burning through it at 18 billion a month when crude was in the 30’s.

Douglas Asbury
Member
Douglas Asbury
April 23, 2016 6:30 pm

I don’t know if anyone has responded to your query, but from what I understand, the Saudis made a deal with Kissinger/Nixon in the early ’70s only to accept dollars in payment for oil, and the rest of OPEC (and the world) bought into the deal as well. That made everyone desire dollars in order to purchase oil. In exchange, the US agreed to provide its “nuclear umbrella” for the Saud family against regional enemies (esp. Iran & Syria) as well as to sell them any weaponry they desired (to keep the potential enemies at home in line). With the US now having made deals with Iran and removed sanctions, and putting up resistance to selling some arms to the Saudis, and the Congress getting ready to issue a report noting Saudi complicity (through its support of radical Wahabbism) for the 9/11 attacks, on top of the fact that China is becoming a larger purchaser of Saudi oil, the concern is that Saudi Arabia (and OPEC) will begin taking other currencies (esp. the renminbi) in exchange for oil, which would make the dollar significantly less desirable (because less necessary), leading to many nations that hold US debt instruments quickly seeking to rid themselves of them in large quantities before the dollar’s devaluation made them significantly less valuable, thereby starting a rapid downward spiral in the value of the dollar and triggering demands that the US begin paying its debts to all those who hold dollar-denominated debt instruments (read trillions in Treasuries) – which, of course, the US wouldn’t be able to do, unless the Fed printed trillions more dollars and bought trillions more Treasuries, thereby enabling the US to pay its external debts – with nearly worthless dollars – but hyperinflating prices on Main Street because of the disastrous drop in the dollar’s value. Rickards and others like him see the US post-reserve-currency becoming like post-WW II Germany, with no White Knight nation available to create a Marshall Plan to bail it out, because every other nation in the world’s financial well-being is founded on the “full faith and credit” of the US. That’s pretty much what they’re counting on, however vague they are about when it will happen.

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arch1
April 23, 2016 7:35 pm
Reply to  Douglas Asbury

Excellent history and analysis. To add to your scenario, there is a new player in AIIB; http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/12069026/China-establishes-rival-to-World-Bank.html
And just this past week news out of China that the Yuan would be tied to gold.
OPEC has been seeking a way to break free of the $ for some time, tried to shift to a basket of currencies including the Euro just as it started crumbling. This new vehicle may well turn out to be where they settle. IMHO

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Bryan J.
Member
Bryan J.
January 20, 2016 8:00 pm

I missed the first 20 minutes of the broadcast but got the jist of it. Jim said he would not recommend using forex to profit from this. Well being the contrarian that I am, I did not take his advice. I went to a forex website that I had a practice account with for nearly 7 years. I have gotten very familiar with forex but had never used actual money. This is the “God’s honest truth”…..It only took me 20 minutes to open the live trading account! There were no forms to fax or get notorized. I gave them info to run a credit check on me and answered 4 questions that only I would know to verify my identity. Here’s the best part, you can fund the account with a DEBIT card! No “wiring funds” from your bank that takes days and has fees. The account funded immediately. I found the USD/SAR currency pair and knew exactly what to do. I have 50 to 1 leverage and that is saying any devaluation is going to be multiplied by 50 times. If the riyal goes from 1: 3.75 to say 1: 4.50 that is a 20% reduction that will become a 1,000% gain.

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Bryan J.
Member
Bryan J.
January 20, 2016 8:38 pm

You’re right about leverage but it has been pegged at 3.75 for 30 years. I wouldn’t think it would go above 3.75 unless the SAMA just wanted to burn those betting on a depegging. Which is a possibility….. http://www.zerohedge.com/news/2016-01-20/saudi-arabia-unleashes-capital-controls-bans-bets-against-dollar-peg

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Bryan J.
Member
Bryan J.
January 20, 2016 9:31 pm
Reply to  Bryan J.

Correction….Its only a 20:1 leverage with the USD/SAR pair. 50:1 is for major currency pairs. The financing charge (interest) on a 4900 SAR short position is running me 21 cents a day.

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lynn clark
Guest
lynn clark
January 20, 2016 8:31 pm

I have been in Jim’s strategy service for some time. He is brilliant, the young guy who recommends the options, and who I think is doing the research behind the recommendations, does not impress me at all. From what I can gather so far, the younger individual’s recommendations are losing a lot more than winning, and in my opinion, he may be doing Jim a disservice. The article on the impact system had many arithmetic errors in it, like gains of 200% and they were really 28% or so. if you can do simple division you could see this. i think they have since corrected the mistakes. If Jim knew this, he would probably be seething. This young guy also gave two incorrect descriptions on options, describing a put as a call and vice versa. I say this because i have read jim’s earlier articles in 2014 and believe me, he understands options and knows how to explain them. We’ll see what happens. I too have also lost money on lots of services out there with options, I would just love if someone selling these would say, ” 90% success in the past year, we publish every option trade in the past five years, entry and exit price, % gain or loss, and amount invested.” I say amount invested because all these services say so and so made $50000 on this investment, so and so has made $20,000 in the past month. I could care less how much they made if they invested 100000 to make 20k.
In summary, I hope jim goes back to writing great articles, making his own recommendations on where to invest money in a crisis, and hiring someone near his age, with 40 years experience, and phenomenal success in the stock market trading options. Then I will trade options. If only for every trade the service recommends Stock Gumshoe and Travis could evaluate and articulate. Thank you for your fair critique. I really like this service.

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macavity
Member
macavity
April 14, 2016 2:24 pm
Reply to  lynn clark

Excellent point Ms. Clark. If the letter doesn’t mention all of their trades then the numbers they tout are meaningless. They could be telling the truth regarding their wins but the wins are meaningless if they don’t include their loses or even the context of the trades. If you are on this Web site you’ve heard the pitches, “John Doe made $20,000 last year trading our super-duper system. Wouldn’t you like to add another $20,000.00 of income this year? Act now, this offer is limited to a few special people like you for a limited time”. What they don’t say is the amount John invested. Was it $200,000 and a return of 10%, perhaps $2,000,000 and a return of 1%, or perhaps John made $20k but lost $30 in the process.

There may be letters at Agora, Stansberry et al. that will make their readers enough money to justify their cost but they sound like they are selling Snake Oil.

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Margaret
Member
Margaret
January 20, 2016 9:11 pm

I have 3 of Rickards susbriptions, he always chooses very long dated options with 6 to 12 months on them. His calls and long positions are all in the red. His puts are doing fairly well.

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Moffated
Member
Moffated
January 22, 2016 7:02 pm
Reply to  Margaret

In this market, everyone’s puts are doing well.

Genie
Genie
January 20, 2016 9:23 pm

Here is a link to get his latest book. Look forward to any comments.

http://www.zempreneur.com/uploads/5/7/6/1/57616765/rickards_bigdrop.pdf

arch1
January 20, 2016 9:55 pm

Personally I would not touch this. In political affairs there are too many variables compounded by political maneuvering to have any kind of sense of such matters.Neither Putin or Obama can afford for turkey to fail,especially after th Russian pipeline is being
laid across Turkey to take oil to the Mediterranean and thus to Europe. They are having a meeting to discuss this very soon. Imagine what another failed Islamic nation would mean for the region,,and Turkey abuts Europe.

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D
Member
D
January 21, 2016 12:56 pm
Reply to  arch1

Very good points.

gary
Member
gary
January 24, 2016 3:12 am
Reply to  arch1

Turkey pipeline is kaput now. Putin is in talks with Bulgaria about the south stream pipe line project. talks are scheduled for 27 th of Jan between the both Governments

D
Member
D
January 20, 2016 10:10 pm

Great article, Travis. You’ve just explained why none of us should be trading options 🙂

It’s weird to see options prices distorted by newsletter reco’s.

It’s a bad idea to use stop loss orders on options, because they fluctuate so much.

Best to buy options near the current price, with the lowest implied volatility possible. I made some real money once on a deep out-of-the-money bet against the yen. But that was in late 2012, at the right Abenomics moment. Never worked for me again.

Not as impressed with Rickards. He pushed the “hyperinflation” and “collapse of the dollar” ideas well after it was clear that he didn’t understand QE (it’s not money printing) or that the velocity of money has been plummeting. The deflationistas like Shilling, Dent, and the Elliott Wave folks have been far closer to the mark.

Same goes with Edelson, who has a poor track record outside his specialty areas like gold. He keeps riding weird hobby horses of very unlikely possibilities: the US stock market doubling (after foreign money pours in), even when it’s one of the most overvalued in history; big new commodity boom, even though the bullish commodity supercycle is over; or another China boom, even as their financial system implodes and their labor force demographics tank. China’s population will drop by about half by the end of this century. Time for a reality check.

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D
Member
D
January 20, 2016 10:17 pm
Reply to  D

If you want to learn how to trade options, you will need to make some effort. The website SimplerOptions had some nice free material to get started. It does require some learning. I haven’t taken any of their paid courses. If you do, you’ll definitely need to make some effort. But then you’ll learn something and not be dependent only on some expensive service.

The Elliott Wave site has a lot of free stuff, and I can’t recommend it too highly. But some learning effort is needed. All that brain expansion will probably prevent Alzheimer’s later on 🙂

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Martin
Martin
January 23, 2016 6:49 pm
Reply to  D

99% of the people in America did not understand QE. A few people did. Cullen Roche got it correct at the get-go because he has studied how money works in the US system. Currently, most people still do not understand, but that is the way of most things.

Marshall H.
Marshall H.
January 20, 2016 10:28 pm

Dan Amoss does the writing; I do not believe that Rickards is very active anymore. I took the subscription because it touted “currencies”, something I am very interested in. Once I took a look at what he had in his portfolio of trades I realized IMPACT was just another option picker. I did 2 of his trades, realized that they were not going anywhere good when I received an email from Amoss indicating that they had erred in the timeliness of a report or some other activity.
I cancelled soon after that. It cost me 10% termination and the 2 trades are a loss of $300. There are better option pickers and certainly better currency option services out there than Rickards.

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Henrik R.
Member
January 23, 2016 2:35 pm
Reply to  Marshall H.

You say:
“There are better option pickers and certainly better currency option services out there than Rickards.”
You are quite welcome to mention them! And explain how they compare.

gene schulze
Irregular
gene schulze
January 20, 2016 11:52 pm

Beware of anything from the Agora people that describes a mystery or secret strategy with a name in quotes, as for example selling options to produce an immediate income stream. The other thing to keep in mind about all the financial newsletters making recommendations that supposedly could result in huge returns, is that the writers are not keeping the recommendations secret in order to take advantage of their own intelligence, so if they do promote a given trade, they or their most expensive newsletter insiders will get the benefit of the bounce from their recommendation by being ahead of the crowd. There’s much less risk in selling a newsletter than in investing in expected ten baggers.

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ProfessorCohen
Member
ProfessorCohen
January 21, 2016 2:04 am

A lot of words have been written here without reference to the highly, highly dubious forecast of the Saudis severing their currency’s peg to the dollar. Presumably, the Saudis know that this makes no financial sense. Assuming their currency depreciates, this would result in increasing the price of virtually all of their imports at a time of great economic fragility that already threatens to trigger social unrest. And how would depreciation of the riyal help Saudi exports? Virtually ZERO. Oil is priced in dollars internationally and trades at an internationally determined price. So the Saudis would reap NO competitive advantage for what is their overwhelmingly dominant export. Currency depreciation makes sense only for a country (it could be Turkey) that has a balance of payments deficit problem and wants to curb imports by making them more expensive in local currency terms and wants to reduce the cost of exports to foreigners when converted from local currency prices into in dollar terms. Maybe the Saudis will act irrationally, but the basic premise of this recommendation to act on the likelihood of a Saudi currency depreciation is somewhere between flawed and ridiculous. The Turkish economy may well weaken, but the trigger is not likely to be the Saudis.
Furthermore, if Rickards is in fact “predicting a US recession — caused by the Federal Reserve tightening during a time of weakness,” his economic credentials, in my opinion, are worthless. The recent tightening was so minor as to be of minimal effect. Given the softness of the American economy in recent days as well as the tumbling stock market, I would not hold my breath waiting for the next Fed tightening.

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RAjendra Tripathi
RAjendra Tripathi
January 21, 2016 12:07 pm

Travis, good job of analysis on TUR options recommendation. I am new suscriber to his service. He is very knowledgable person regading international finance and currency. My personal experience with his recommendation so far has not been good but still have open trades so too early to tell, but the fundamental and the logic seems to be solid. every one trading has to manage their risks andleverage so you can only risk 1% of your portfolio in any single trade so after losses you have enough capital left continue trading and recover. If one takes too much risk and puts 5or 10 % of ones capital in a single trade then there is good chance one will loose all your capital .So having said that options trading by itself is notgood or bad but a tool to use.
Bye the way my open order to buy TUR 30 August Puts has not been filled yet and may not get filled if market moves down but i will not pay the market oeder after the rcommendation is made as it will drive the prices higher after the recommendation .I hope that helps

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