Podcast – Episode 38 – 2019 Predictions

Podcast Transcript

Welcome Genius Nation to another exciting episode of the Option Genius Podcast. This episode, we’re going to be talking about 2019, and what’s going to happen, or what I think is going to happen. Now it’s called the prediction episode. And I hate predictions, mostly because most of them are, you know, wrong and people are pulling stuff out of thin air. But last year’s episode, where I made predictions for 2018 was so popular that I decided to do again and just have fun with it. Really, that was one of the episodes that we got the most feedback on, one of the most feedbacks. And people were listening to that episode all the way to the end of the year, really. We had some comments, emails, that came in towards the end of 2018 where people who had just found the podcast were like, “Hey, I listened to your 2018 episode, because I want her to see how you did and what was right and what was wrong.”

A couple of things, I actually had chuckles on, so I’m glad I was able to make them laugh. But the way I do prediction, is really I try to look at trends. What is going on? What has been going on? And as they say in trading, the trend is your friend. So the trends will probably continue. So if we can identify these trends, especially if they’re long term, if they have been occurring in the past and they’re going to continue to occurring. Then those are things that we can actually benefit from in a financial sense. Right? So for example, the aging population of the United States, more and more people are getting older. The boomer generation is older.

And so there are ways to monetize that, if you want to. See those are the types of trends, something that’s not going to just be a flash in the pan, and just go away in a few months, but something that’s going to continue for a long term. Those are the types of trends that I would like to identify. Those are the trends that I would like to invest in. And just, put your money in and take advantage of this over, and over, and over again where you don’t have to watch it, and monitor it, and really be more passive about it.

So before we get into the predictions of 2019, let’s take a look back at what I said was going to happen in 2018, and see if I was actually right, or if I have egg on my face. So prediction number one from 2018 was that AI, artificial intelligence, is going to be used more and more in daily life. This is a trend, right? This is something that is occurring. This is something that we see. So this was kind of an easy prediction. And AI was more ingrained in almost all aspects of life nowadays.

More and more cars have the self driving features. We have these firms, these financial firms, like Betterment that are money managers who are mainly using AI to manage people’s money and allocate it in certain investments. The Quant Funds, the hedge funds that are run by algorithms and computers. They made money this year, while most funds lost money, and the marketing as a whole was down. So all the index funds were down. And most of the stock picking funds where they actually have people doing the work were down. And if you’re interested in this, in AI, and learning about what’s coming down the road, where we might be going as a species, take a look at the book called “The Singularity is Near” by a guy named Raymond Kurzweil. I mean, this is crazy, crazy stuff that he predicted years ago.

Now not all of it has come to fruition yet, but we are much closer now than ever. And basically what he calls the singularity is when man and computer will be basically one. I mean, we’re still human, but computers will be part of our brains is what he’s saying. And we’re not there yet. But I mean, do you know anybody who still doesn’t have a smart speaker in their home? Right? One of these Alexa Echos, or the Google Home, or the Facebook Portal, or any of the others. I mean, everybody’s got these things. So it’s moving more and more in that direction with smart homes, and smart doorbells, and smart alarm systems, and all this stuff.

I mean, the quote unquote smarter our homes get, the more stupider we get, because we’re using our brains less and less and less. But that is seeming like what the future is going to be holding. So this one particularly, I was right. So I’m one and oh, so far. Now, prediction number two from 2018 was that the stock market will actually be up in 2018. And I missed on this one, but only by a little. I mean it was up for the whole year, until November when it dropped about 20% and then we ended down somewhere around 6% for the year, depending on which exchange you’re looking at.

And well, I mean it was over done, market going up was overdone. And the feds started raising interest rates, which was inevitable. Growth also seems to be slowing down. So earnings growth, share growth, all those things, revenue growth, those are slowing down. And so those were particularly the reasons why the market was down. It was down a little bit, not too much, and for those of us who were long stock or long index funds and ETFs, and then we were selling calls against them, we actually turned out a really good year. So if that’s something that you haven’t been doing, I would suggest you do so even, especially if you don’t think that the marketing is going to continue to go up 20% a year.

All right, so far I’m one and one. Prediction number three was that oil prices will be higher. And oil was at $60 a barrel at the beginning of the year. Currently as I record this, it’s trading at $52 a barrel. So I was wrong on this one as well. But again, just like the stock one, I was right until November. And then oil tanked, from $77 all the way down to $42 and then rebounded in January of 2019. So why? Well OPEC really, they decided to take back their production cuts. So they had cut production and that had sent oil higher and then they came out and said, “Hey, you know what? We’re not going to do these cuts anymore. We’re going to put more oil into the market.” And prices dropped.

That was the main reason. And once they did flood the market, oil prices started to drop. But there was something else at play here as well that I want to talk about. You see, being long oil was a very easy trade. You listen to what OPEC is saying and you follow along with it because over the last couple of years, two, three years, they’ve been spot on. So when they say they’re going to pump more oil, prices go down. When they say they’re going to cut back on oil, prices go up. So it’s been pretty easy to see that. And long oil was a very, very crowded trade, meaning that there were a lot of people who had long options, and long futures contracts in oil where they were just buying them, thinking that the price is going to go up and up and up.

And so when the price started dipping, the price started dropping, these algorithms, these funds that use computers, started selling and that caused margin calls on a lot of futures trading firms. That caused panic selling, which caused more dropping of the oil price, which caused more margin calls, and more selling. And in the end it was a bloodbath that blew up many futures trading funds and firms. And it wasn’t pretty. And that’s why you have a drop from 77 to 42. I mean, that’s almost a 50% drop because not because of a huge major fundamental change, but because of the way these firms were trading the futures markets.

And so that part has now, it’s over, the selling on that is over. And since then oil has actually rebounded. So, it’s up about, it was at 42 at the low. Currently it’s right around 52, so it’s up $10 since then, which is about 25% from the low. So what is oil going to do next year? It’s hard to tell. So I’m not going to be making a prediction on this one. But I do believe that oil is going to remain steady. It’s not going to be as volatile as the November. I mean, most of the year was not that volatile. It got very volatile in November. And so at that point, if you’re trading oil, like we do have our blank check trading course where we trade options in oil. One of the first things I said was, “Hey, if you don’t need to be in the market, don’t be in the market.”

The volatility is getting super high. Just take a step back as option traders and options sellers, we don’t need to be in the market every single month. We do not need to put our money at risk when things are going crazy. And so that is why you really need to look at volatility as well as what is the stock doing, what is the market doing, to keep an eye on volatility as well, especially, well, we’ll get to that in my future predictions.

Prediction number four from last year, 2018, was that China would be more independent and stronger. And I was right about this one. As I record this, the US and China are at odds right now, and going toe to toe in a trade war. They got terabytes on both sides. And they’re trying to talk it out and it doesn’t seem like they’re going anywhere. This was unthinkable 10 years ago, I mean, even five years ago. This was unthinkable. But it is happening and the Chinese are not backing down.

I mean trump had a trade war with Mexico and Canada recently, right? And both of them made concessions fairly quickly, and those are pretty big markets, especially Canada. But China is holding firm. So they are getting stronger and stronger. They are becoming more dominant in the world, especially certain parts of the world where the US is not. And they’re taking over, and I would say that their influence is even greater than the Soviet Union was at the time in the 80s. So that leaves me two for two in my predictions.

The last prediction of 2018 was that it was going to be a great year for option sellers. And it was. It was truly. The majority of the year, we had low amounts of volatility and put spreads and non directional trades worked very, very well until the end of the year though when the markets dropped. The VIC spiked, and people that were unprepared, they got hurt. So although the markets were down themselves, I’m going to say that option sellers still came out ahead at the end.

So after my first year of predictions, I’m going to end up three and two. So I won three and I lost two. Okay, so let’s look at 2019. What is on the horizon? First of all, I’m going to say that interest rates, I believe, will be higher at the end of the year and inflation will be higher as well. In fact, you can already sense and feel the inflation in consumer goods like food, travel, and any kind of services that you pay for. So to tame inflation, the Fed will have no choice but to raise rates, two times, maybe three times, maybe more. Hopefully not more, that’s going to kill the stock market. But at least two times, maybe three times. And that will put a damper on a lot of things. So I would say for prediction number one, interest rates will be higher. Inflation will also be higher.

Second prediction is that we are actually headed for a recession here in the United States. Now this one is a little bold, I think, because most pundits out there are saying that we will not have a recession in 2019. But I do think there we will have one. Now to have a recession, you have to have negative growth for two quarters, meaning the economy has to contract for two quarters in a row. And so you will be in a recession for a while before it is officially called a recession. So let’s say, whenever you hear this three, let’s say for the next three months you have negative growth and then another three months you have negative growth. So six months from now is when they would say, “Oh, you know what? Hey, we’re in a recession.”

It’s a lagging type of indicator. So even though you’ll start feeling the effects of it now and for the next six months, it won’t be called a recession until six months from now. Okay. So I see economic activity slowing down in at least the back half of 2019 if not sooner. We’re not going to have much growth in the first half. We will have inflation, and layoffs in the second half. And then in 2020 they’ll actually come out and say, “Hey, you know, we were officially in recession and that it started in 2019.” So that is my prediction. It won’t be called the recession until 2020 and they’re going to try to keep that as far away into the future as possible, because we do have elections and all that stuff coming up. But I think in 2020 they’re going to say that yeah, we’re in recession and it started in ’19.

So that leads me to prediction number three, which is that the stock market, will be lower. Last year, I said it was going to be higher, this year I’m saying it’s going to be lower. And as I record this, the S&P 500 is at 2,600 right around 2,600. So I believe it’s going to be lower at the end of the year. Now again, this is contrary to most analysts. According to most analysts, the markets should be higher next year, because what they’re saying is that when January is a positive month, the market overall for the year is positive. So, that’s the way it normally happens. I think this year is going to be an abnormal year.

I don’t know what we’re going to do for the rest of February or rest of January. Market has been up a little bit so far. We did have a little bit of a Santa Claus rally at the end of the year of 2018. That normally bodes well for the markets. But I think growth is going to stall. I think earnings will stall for most companies and after a decade of strong stock market, we’re going to have another year of declines. So that’s my prediction there.

Onto prediction number four. Everywhere you look, and this is a little bit more localized. So everywhere you look now, when you see financial ads. Now if you are a trader, if you are an option seller, you see ads on Facebook, you see ads on Google, you see ads following you around with the remarketing. And eventually you’ll subscribe to something like a download, a free PDF report or some something and you’ll buy some small thing, and you’ll get on these email lists. So then once you get on one email list, it seems like you get on a thousand different email lists, because then everybody starts selling you and sending you emails about buy this and buy that.

And so when you look all over at these financial ads run by these financial newsletter companies that want you to give them money for their financial information and research, a lot of the marketing you are seeing nowadays and it started in 2018, but it’s really going to, it really picked up towards the end, is about pot stocks, right? Marijuana, that pot stocks are going to be the next boom in investments. You probably already understand this and now you have to understand why this is. Okay. Why all of a sudden is there this huge focus on marijuana?

Well, because financial newsletter companies have to keep coming up with new ideas to pitch you. That’s what it is. They can not just come out and say, “Hey, we want you to buy our newsletter and we’re going to give you stock picks.” Even though that’s exactly what they’re doing, right? They’re going to be like, “Hey, we’re going to show you how to get rich.” Well, that’s what everybody else says. So they have to stand out from the crowd. They have to make it enticing and mysterious. So even in their ads, they’re going to be talking about this big opportunity or there’s big amazing company, they’re not going to give you the name, they’re not going to give you exactly what it is until you actually give them some money.

And the way the financial newsletter space is right now, it’s dominated by a few companies that are owned by the same people. So I mean it could be all one big company, but for whatever reason, they’ve broken it up into several different sister companies that are all fighting amongst each other. So they do cooperate in the sense where they share their promotions and they share their email lists and stuff like that. But they are set up a separate company so that they look different.

And so if you’ve heard of any of the names, like Agora Financial, Stansberry Research, Weiss Research, Palm Beach Letter, Oxford Club, Money Map Press, and I mean they got like a dozen others, all of these guys are owned by the same people. They all operate the same way. They try to entice you into buying their cheap newsletter for like $50 or $100, and then they hit you up with, “Hey, buy this thing for a thousand dollars. Buy this thing for $10,000. Buy this cruise for $15,000.” A year ago, it was cryptos. That was the big thing, “Oh, cryptocurrency market, cryptocurrency market.”

Now, pot stocks are the big idea. I mean, who knows what it’s going to be next, I don’t know. But these guys are super smart. They’re super creative. They’re going to come out with something that will be new and mysterious to give us, to make us give them our money so they can tell us about their research. And myself, I don’t think that most individual investors should actually be wasting their time on pot stocks. I’m going to get to my prediction.

I’m not at the prediction yet, but when it comes to these marijuana stocks that are talked about in these new letters and whatnot, most of these are very small companies. Most of these are going to be knocked out of business, they’re going to go out of business by themselves, or they’re going to have somebody come in and knock them out of business before they make any kind of money. So I think that most individual investors should not be wasting their time on pot socks, but take it for what it’s worth.

Now, this ties into my prediction, which is prediction number four is that more and more states will be legalizing marijuana. Again, this is a trend. You can probably see this yourself, right? It’s not something out of left field. They are already 11 states that allow it for recreational use. So it’s legal for everybody. More and more are coming. Heck, I mean, I’m in Texas and Texas is going to have it up for vote very soon in the government. And Texas is as conservative as it gets.

In fact, in Congress, they now have a congressional cannabis caucus, led by a representative from Oregon, which is going to try to get pot declassified, so that it is not treated the same way as other narcotics. Right now, pot is the same as crack, or cocaine or, all those other ones. But they are trying to make it so that pot is not as bad, and is not punishable by jail time, and fines, and whatnot as the other ones. If that happens, then it’ll actually make it easier and more compelling for other companies to get involved in the marijuana trade.

Now Canada, the whole country of Canada, it’s legal, in the whole country. And the tax windfalls that are being collected by Canada, and by all these states that have already made it legal, I mean for everybody else, for the rest of the country, I think it’s going to be a race not to be the last one to get to the punch bowl. I mean, you have all this money collected in taxes, and these governments are spending more than they collect. And that just seems like it never changes. But they going to see this as an additional tax revenue and if they see more and more states, like a domino effect. A few of them have already been doing it now more and more are going to be racing to it.

And so I say that we’ll probably have about 20 states legalize it for use by anyone, by the end of the year. And I think 30 of them will allow it for medicinal purposes. So medical reasons, for pain relief. So hopefully by the end of next year, you might have more than half the country allow pot for one reason or another. That’s going to be a tipping point. And so in 2020 it might be a free for all. .And we might have legal marijuana everywhere, who knows. Or maybe just one or two states that are left holding out. But it’s going to really change a lot of things.

So the one company that I want to buy, to take advantage of this would be Philip Morris, ticker MO, because, I mean, they’ve been making cigarettes and smoking. They know about it, they know marketing, they know distribution. They have all the channels already there. Everything is laid out. As soon as they get the go ahead from the federal government that we’re not going to prosecute you, they could go in and just blow up everybody in every state. The only limitation would be that the way the laws are now in each state, you actually have to draw or grow the marijuana in that particular state. You cannot take that marijuana to a different state to sell it.

So you have to grow it in that state and then you have to sell it in that state. Actually, I’m not too sure about the selling of the actual goods. But I think you have to grow it in that state and you have to sell it in that state. I don’t know about those, like those edibles, you know, like the gummy bears, and the chocolate bars. I don’t know if those can be transported. I don’t think so. But if that’s the case, it’ll be a little bit harder for Philip Morris. But I think they’re going to be the ones that really hit a home run with this, or at least for recreational use.

Now for medicine purposes, big Pharma, the big giants, Pfizer, Merck, all of them, they will make it a pill to some point, or an injection or something and they will dominate that field once it becomes legal. And so that’s why the little companies that you have now, they’re recommended by all the financial newsletters, those guys are going to be put out of business by these big firms once they come in. Now they might make a little bit of money for a year or two until everything becomes legalized.

But the point is that right now, it takes such a huge investment to get that going that they might not ever get their investment back, before they’re shut down, or put out of business. Now you might get lucky if you’re an investor in one of these, and they might get bought out by a larger company. Philip Morris might come in and say, “Hey, you know what, we’re not going to start our own nursery or pot growing facility. We’ll just buy a couple that are already there.” And then you might get bought out at that sense. And that might be lucky for you. But I wouldn’t bet on it. I wouldn’t say that that is the only way to make money. You never want to be an investment, in a stock and investment, hoping that the only exit you can have is a buyout. So that’s prediction number four.

On to prediction number five. This one is a little bit of a negative. I’m saying that real estate prices are going to drop. Now this one is going to be hard to gauge, right? We don’t know if I’m going to win on this one or not, if I’m going to be right or not, because it depends on location. But overall, I feel that it’s going to be a buyer’s market, in the US when it comes to real estate. There’re going to be fewer, fewer buyers in the market, and fewer sales overall. Now we’re already seeing this happen. So if you look at the earnings calls, the earning reports of the larger home builders that we have, they already report fewer and few people coming in to see the models, right? They’re having fewer closings.

They still have people coming in that want to buy a house, to get in before interest rates go up too high. But they’re looking at cutting down their expectations for 2019. They’re not going to be constructing as many homes, because they’re not seeing new people come in, saying that, “Yeah, yeah, we want a house six months from now. We want a house a year from now.” And I’m seeing this effect myself as well, because an investment that I was in, which was, it was an investment where they were buying properties that are broken down here in Houston, they were fixing them up and then they were selling them. This investment actually did very well, but the fund is closing down, because there are too many investors like them. There are too many people that are chasing these deals of the messed up houses.

There aren’t that many houses there. There are more people chasing them, trying to buy them. And there are not enough people buying the homes, when they’re fixed up. So that is leading to smaller and smaller profit margins for these fix and flippers. So the people running this investment decided to just shut it down and return all the money to investors instead of trying to keep doing it and go after smaller and smaller margins. And I’m hearing more of that sort of thing happening all over the country. Not just in Houston. But in other areas as well, like Atlanta, Denver, and others.

So if you are looking to buy a home or a business property or even a business itself, you might want to wait. Or I mean, you could put in a low ball offer. Right? And just sit on it. And just let the person know and say, “Hey, you know what? Here’s my offer. I think the market’s turning and I think this is a legit offer. I’m ready to buy if you agree to this offer. Now I know it’s less than what you were expecting. But keep my offer, keep my phone number. And if you ever decide to change your mind, let me know.”

And then just keep calling that person back after a couple months, two, three months, give them a call, “Hey, I’m still here. My offer’s still valid. You want to do it, let’s do it.” Eventually I think there’s a good chance that you’re going to buy whatever you want to buy will be cheaper in a year or two. So, keep your powder dry. Keep some cash on hand, and be careful. So that’s it for my 2019 predictions, much more dire than last year, unfortunately.

But it does seem that there are dark clouds on the horizon. Now, I wish I was wrong. I wish I will be wrong on the direction of the markets and real estate, and other real assets, but we won’t know until next year. That’s the whole thing about predictions, right? I would love to hear what you guys think of this episode. Email me and let me know. If there’s something I’m missing, please share that as well because I learned from you guys as much as you learn from me. So I hope you have an amazing year. Be vigilant, be careful on any risky ventures and maybe keep a little more cash than you have in the past on hand, because when things go down, that’s great time for people who have cash to be able to buy stuff really, really cheap. So take advantage of that as well. And remember trade with the odds in your favor.

1 Comment

  1. Dale F Yamarino on February 1, 2019 at 2:54 pm

    I wanted to thank you for your insight and observations. I was thinking that the decrease in baby boomers and the increase in millennials could have an impact on the overall market. Boomers I’m sure will go with the pot stocks, while the millenials will be more focused on a diversified portfolio. It always helps to get another perspective. Especially when no two persons needs are the same.

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