Tit-for-tat in the green arms race should tighten metal suppliesThe energy transition - the process of moving away from greenhouse gas intense energy consumption towards more renewable energy sources - presents a significant positive demand shock for the metals needed to build out grid infrastructure, distribution and transmission cabling, vehicle charging infrastructure, battery components, solar panels, and wind turbines. However, many nations who are trying to deliver on their promises to meet ‘net zero’ pledges have come to the realisation that much of the supply chain to produce the metals and the green energy components is currently far out of their jurisdiction and sphere of influence. The Covid 19 supply chain disruptions clearly highlighted vulnerabilities in the status quo. That crisis had already started the process of ‘reshoring’ or ‘onshoring’, i.e., moving more of a product supply chain closer to the consumer market. The energy transition is accelerating this trend.
Inflation Reduction Act catalyses a global green arms race
The 2022 Inflation Reduction Act (IRA) in the USA aims to spur investment in domestic green technology. The majority of the $394 billion in energy and climate funding in the IRA is in the form of tax credits with strings attached to local sourcing.
While other nations and regions have had some form of domestic sourcing incentives in place, the sheer size and scale of the US approach has inspired others to double-down on their strategies.
The European Union’s CRM
The European Union has maintained a list of Critical Raw Materials (CRMs) since 2011. CRMs combine raw materials of high importance to the EU economy and of high risk associated with their supply. The list sharpens the focus on supply security. In 2011, the list contained 14 materials and by 2017, in its fourth iteration, the list was 30 strong.
In March 2023, the European Commission proposed adding four more raw materials to the list. Aluminium has been added to the list1. In the previous iteration, bauxite – a key ingredient for aluminium production – was included, but the now the finished product of aluminium is on the list.
Critical Raw Materials Act
In addition to Critical Raw Materials, the Commission has defined Strategic Raw Materials (SRMs)2. Copper and Nickel are additional SRMs (although they are not CRMs). Aluminium is both a CRM and SRM. The European Commission’s Critical Raw Materials Act proposal sets hard targets for domestic capacities in SRMs by 2030:
at least 10% of the EU’s annual consumption for extraction
at least 40% of the EU’s annual consumption for processing
at least 15% of the EU’s annual consumption for recycling
no more than 65% of the EU’s annual consumption from a single third country
On 30th June 2023, the European Council published its negotiating position3. It wants to raise the bar higher for processing and recycling:
at least 40% 50% of the EU’s annual consumption for processing
at least 15% 20% of the EU’s annual consumption for recycling
The European Parliament has not yet adopted its position and the full negotiation process will likely take time. But based on the Council’s position, negotiations are likely to focus on higher rather than lower local sourcing.
China flirts with new resource restrictions
China said on 3rd July 2023 it would restrict exports of two metals - gallium and germanium - used in semiconductors and electric vehicles, escalating a technology war with the United States and European Union. However, rather than banning the export of the materials, the proposal is to put in place regulations for companies to obtain export licences for foreign shipments of the metal. The curbs follow USA’s blacklisting of Chinese companies in recent years, aimed at cutting them off from access to US technologies, including the most advanced chips. Our understanding is that EU and Chinese officials are locked in negotiations at the moment to keep the trade channel of these metals open.
Conclusions
While a slowly evolving process, last week saw several key markers for resource trade restrictions surface. While it’s understandable that many countries want to ensure resource security by controlling more of the supply chains, we believe the process of adjustment will tighten material supply especially as tit-for-tat counter policies are adopted.
Sources
1 single-market-economyeceuropaeu/sectors/raw-materials/areas-specific-interest/critical-raw-materials_en
2 17 of the 34 materials are labelled as SRMs
3 consilium.europa.eu/en/press/press-releases/2023/06/30/critical-raw-material-act-council-adopts-negotiating-position/
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
Ira
The Simplest Retirement Account Setup I Could Make... for an "investment challenged" spouse.
So, you've got a spouse who's not that tech savvy, gets the glazed over look when you start to say the word "roll over," and then goes positively cataleptic when you start saying the words "dollar cost averaging in," "covered call," "risk premium," and "short delta hedge." Ugh. How can I possibly set up their IRA so that if I croak off tomorrow and they can't manage a covered short strangle or covered call or short delta hedge they can mostly "get by" with just leaving the account alone, because that is what they are best at from a portfolio management standpoint.
Here are the things I was looking for out of this setup:
(a) Simplicity. A small number of instruments makes the account seem less daunting than were I to have them in a large number of stocks, each of which would presumably have to be managed over time. ("Geez, honey, there are only four instruments in there. If you can't manage those, there literally is no hope for you.")
(b) Dividend Generation/Cash Flow. I was really looking for three things here: "decent" cash flow (i.e., dividend yield), regularity of distributions, and regularity in the size of distributions.
(c) Broad Market Exposure, But Not So Broad As to Be Complicated. The most granular I wanted to get with this was broad market. There is a vast array of sector exchange-traded funds that I personally tap into on occasion from energy (XLE) to country (EWZ) to individual commodity instruments ... . (Okay, I'm getting that "glazed eyeball" look again here).
(d) Instruments That Would Emulate What I Would Do Manually (To a Certain Extent). My personal, basic IRA approach over time is to sell risk premium (i.e., short puts) in broad market (IWM, QQQ, SPY) to emulate dollar cost averaging into the broad market without being in the actual stock the vast majority of the time, occasionally taking on shares via assignment, and then proceeding to sell call against (i.e., covered call). I would love to teach her to be able to do that, but there are only so many hours in the day. ("Explain to me exactly where the genes came from that allow my kid to do this, but ... you're confounded by the whole thing?").
Unfortunately, there isn't an exchange-traded fund that does this quite exactly (short put/acquire/cover), but there are covered call ETF's in broad market that do the work of managing broad market covered calls for you. Again, I'm looking for a setup that kinda sorta does what I do, but without having my "investment challenged" spouse put in the leg work and without humping across the learning curve which for some appears to be steeper than others.
So, here are the four (count them) four instruments that we settled on (although if you wanted to make it simpler, you could probably just be in XYLD and call it a day):
QYLD (Nasdaq Covered Call ETF): 11.82% Yield
RYLD (Russell 2000 Covered Call ETF): 13.17% Yield
XYLD (S&P Covered Call ETF): 12.93% Yield
TLTW (20+ Maturity Treasuries Covered Call ETF): 19.09% Yield
After opening an IRA (stop already with the glazed looks), we rolled the 401(k) over into the account and then proceeded to dollar cost average into these funds over time. For example, if they had a total of $100,000, and you wanted to dollar cost average them week over a 52-week period, you'd take the total amount ($100,000), divide it by 52 weeks, and then divide it by 4 (four funds, you know) to get $481. $481 of QYLD would be 28 shares (rounded down to the nearest share); $481 of RYLD, 27 shares; $481 of XYLD, 12 shares, so each week you'd enter orders to pick up those amounts of shares until you're maximal deployed.
In our particular case, we've passed on dollar cost averaging into TLTW for the time being, since (unless you've lived under some kind of rock), being long treasuries or bonds in this environment, well, hasn't been bueno. However, it might be nearing a point at which we might start looking at picking some of those up, depending on when we get to some kind of certainty as to the "terminal rate," which could be in this neighborhood. Additionally, most brokers will allow you to set up automatic reinvestment of the dividends for these, so that you can set the whole thing on kind of an autopilot after you get to deployment of all your capital, although you will want to potentially pop the account open from time to time to look at potentially rebalancing.
Is it perfect? No. Is it exactly my approach? No. Does it work for them? (I'm not sure she can answer that question, except to the extent that she is elated when the dividends just kind of magically dump into the account each month, because literally it's kind of "magical" for her).
Are Health Savings Accounts Worth Your Time? Absolutely.When you're well, sometimes it is difficult to imagine things suddenly taking a turn for the worse. 1.5 years ago, I was as healthy as could be. I thought medical problems were for other people, my checkups always came up roses.
Then I fell ill with an autoimmune neurologic condition, likely autoimmune encephalitis, and I wish I had opened a Health Saving's Account (HSA) the day I turned 18. Funny how life teaches you those lessons.
So what is an HSA?
An HSA is an investment account whose contributions are tax-deductible and withdrawals are tax-free if used for medical expenses. This type of account is only available for those with high-deductible plans health plans. The IRS defines a high deductible health plan as: any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. Literally ripped that last sentence straight out of google. Sue me. If you're uninsured, you're out of luck.
So for those who have high-deductible health plans, it's a way to not only save for sudden health catastrophes, but also to grow your wealth. With Fidelity, there is no limit to what asset class you can partake in. Other HSA's may have limitations, acting more like savings accounts.
When you make a contribution, that money is tax-deductible (so you're investing with "pre-tax dollars"), and will never, ever be taxed if used to pay for a medical expense. But what if your investments have gone down and you have to sell to pay for medical bills? Hint: don't. You can reimburse your own medical bills with NO time limit. That means you could pay $1,000 for surgery using a cash-back credit card (or whatever payment method), wait until your money grows in your HSA, then reimburse yourself tax-free in 30 years. That is, if you kept the receipt ;)
By budgeting, like using YNAB, it's easy to keep track of medical expenses and reimburse yourself tax-free when it makes the most sense. Or, if you prefer, you can invest in more conservative instruments. Like CD's, which are paying as high as 4.7%. Or you can treat it like an actual savings account and enjoy Fidelity's 2.21% APY on uninvested cash.
So for those keeping score:
-Contributions are tax deductible
-Medical expenses are tax-free when you liquidate your investment(s) to cover them, which you can do retroactively with no time limit
-Growth and trading within the account is tax-free (unless you live in CALIFORNIA or NEW JERSEY. Don't ask me, but you will be taxed on trading like you would an individual brokerage account)
-You can withdraw your funds like you would an individual brokerage account at 65 (that is, you'll be taxed but not penalized)
There are pretty hefty penalties for non-medical withdrawals before you're 65: up to a 20% penalty and ordinary income tax on capital gains. Not pretty, so don't put money into an HSA that you'll need for other things.
In addition, there are yearly limits to how much can contribute. For 2023, it's $3,850 for an individual plan, $7,750 for family plans. You can alternatively roll funds over from an IRA into an HSA (but not the other way around).
I opened one today with Fidelity and will max it out every year. I use YNAB to budget, so I can keep track of my health expenses for 2023 easy peasy. It's always best to plan for the worst.
Thanks for reading, and best of health to you.
InTheMoney
S&P500/GSG(The Broad Commodity Index)This explains what we're experiencing now or will when we try to retire on our 401K Plan.
To put it simply, inflation has eroded the purchasing power so dramatically that
retirement may no longer be a viable option for most non-governmental workers!
THE WEEK AHEAD: PDD, BIDU, TGT, NVDA, LOW EARNINGSEARNINGS:
PDD (72/92): Friday, before market open.
BIDU (81/61): Monday, before market open.
TGT (55/49): Wednesday, after market close.
NVDA (51/62): Thursday, before market open.
LOW (51/63): Wednesday, after market close.
Both PDD and BIDU are ADR's, so look to put on plays post-announcement to catch earnings afterglow, if at all. The dates of their announcements tend to be "soft," meaning they're subject to change, and there's nothing more disconcerting than putting on a volatility contraction play, only to have earnings not occur when they're initially supposed to.
Pictured here is an NVDA short strangle in the June cycle with break evens wide of one standard deviation. Off hours, it's pricing out at 10.35, but markets are wide. Because it's rather large, consider going iron condor, looking to collect at least one third the width of the wings in credit (e.g., the June 19th 275/280/405/410, paying 1.73 at the mid price).
SECTOR EXCHANGE-TRADED FUNDS, ORDERED BY RANK AND SCREENED FOR >30-DAY IMPLIED:
SLV (57/41)
EWW (56/46)
GDXJ (51/61)
SMH (49/49)
GDX (44/51)
XLE (44/52)
EWZ (44/60)
EEM (44/60)
XLU (42/31)
XOP (34/67)
USO (13/78)
BROAD MARKET, ORDERED BY RANK:
IWM (60/47)
TQQQ (53/99)
EEM (43/34)
QQQ (36/32)
SPY (33/31)
IRA DIVIDEND-PAYERS ORDERED BY RANK:
IYR (61/44)
EWA (49/42)
EWZ (44/60)
EEM (43/34)
XLU (42/31)
EFA (38/28)
HYG (34/19)
SPY (33/31)
EMB (27/22)
TLT (24/20)
With acquisitional plays for a retirement account, it's not necessarily "all about the premium"; it's partly about price, so it will pay to look at a few charts to determine which of these are trading at a discount relative to where they've been. That being said, having a higher background implied is of benefit, since it will result in a lower break even relative to strike price than were implied not as high and getting in lower is always better in the retirement account. For instance, I'm not in "acquisition mode" for TLT, not only because of its low implied, but because it's at or near all-time highs, moves inversely to yield, and doesn't necessarily have all that much room to move higher given the current interest rate environment. Conversely, EMB and HYG implied aren't all that great (treasury and/or bond funds are not known for having high volatility, generally), but both got absolutely crushed in the mid-March closely correlated sell-off, so I could see selling out-of-the-money puts in those instruments, assuming they were at levels I'd be comfortable with acquiring. (See HYG, EMB Posts Below).
Granted, these are large ticket items and not everyone is going to be able to go out there and sell a three-rung, SPY 16 delta short put ladder; the price tag is hefty. However, implied metrics can be informational for even those with smaller accounts. At the very least, these metrics are saying: "Look at me. I'm moving", and -- in the vast majority of cases -- they say, I've moved lower and that this may be the time to pick up some shares, even if they're fractional. Over time, fractional shares aggregate into one lots that you can proceed to cover and reduce cost basis more efficiently, as well as generate cash flow on top of dividends.
OPENING (IRA): TLT APRIL/MAY 159, 161/190 CALL DIAGONAL... for a 1.83 credit; delta/theta -33.33/3.30.
Notes: Here, overwrote 20 delta calls in April and May late in the trading session to flatten net long delta'd covered calls I have on in TLT and to add a little something something to what is now a low yielder from a dividend perspective. As you can see by the chart, we're basically at all time highs since instrument inception, so it wouldn't be the worst stand-alone short I've ever undertaken, particularly since it's out-of-the-money. However, it needs to be looked at in tandem with the covered calls as an overall position and, as such, the entire show is still net delta long (i.e., primary covered calls plus this setup).
Additionally, I bought the May 190's in a number of contracts equal to the total number of short call contracts to act as throwaway longs, not only to bring in buying power effect, but to get around the general prohibition against selling naked long calls in a cash secured environment (they were .07 at the mid price, so I'm not giving up much).
OPENING (IRA): SPY CALL DIAGONALAfter taking off a similar setup earlier in the day, re-upping with a covered call long delta cutter setup using cheap longs in the September cycle (I paid .07 a piece for them) and shorties in the May, June cycles (for which I received 5.84/contract).
At the moment, I bought a few more long contracts than short ones, so that I can add more short call units later if the market decides not to do any of the heavy lifting for me.
Previously, I laddered the short calls out quarterly, but longer-dated options' liquidity isn't all that great here, so keeping things on the shorter duration end of the stick.
I pick up around -16/contract net delta by doing this, rendering my entire setup flatter, but still net long delta here.
ROLLING (IRA): SPY DECEMBER 18TH 255 SHORT CALLS TO 260... and selling the 250 short puts to finance for a net 2.90/contract credit. (See Financing Strike Improvement Post, Below).
Notes: My original thought process behind just rolling my 255's out "as is" over time was that I (a) didn't have all that much time until retirement; (b) have experienced a couple of those 40% sell-offs and didn't want to endure another one of those here; and (c) just plain ass slept better at night knowing that I had a ton of down side protection on in the event of a massive sell-off, even though I knew that my shares could literally be called away at any time. Naturally, I didn't expect that this would continue with its up grind ad infinitum (or so it seems), so am throwing a little caution to the wind here to improve those short calls strikes by 5, while getting paid some premium to do so, all in a high volatility environment.
I would also note that I overwrote some calls via a laddered call diagonal, so am net delta short on my SPY position in the IRA at the moment. Consequently, I am less hesitant to add back in some long delta, particularly where the calls are buried so deeply in the money (the 260's are at the 81 delta at the moment). Naturally, doing this here comes at a price, just as overwriting calls did, but I'm not doing a ton here in the IRA at the moment, and this gives me a way to deploy some idle capital, albeit at the risk of potentially acquiring additional SPY shares at 250, which I'm not particularly keen on.
OPENING (IRA): XLU JAN 17TH 52 SHORT PUT... for a .48 credit.
Notes: One of the underlyings on my IRA shopping list, pulling the trigger here on a "not a penny more"* short put at the 52 strike with a resulting cost basis of 51.52/share if assigned on the 52 shortie. The current yield is 3.06% with an annualized dividend of 1.85.
Will look to roll out "as is" at least quarterly for further cost basis reduction until assigned or that's no longer productive.
* -- See HYG "Not a Penny More" Short Put Post, Below.
OPENING (IRA): QQQ NOV 15TH 182/JUNE 19TH 218 LONG PUT DIAGONAL... for a 26.47 debit.
Metrics:
Max Profit on Setup: 9.53 ($953)
Max Loss on Setup: 26.47 ($2647)
Break Even: 191.43
Debit Paid to Spread Width Ratio: 73.5%
Delta/Theta: -62.91/4.51
Notes: While I'd like to wait for QQQ to revisit all time highs to put this on, I'm pulling the trigger on this delta cutter here in the IRA (See Post Below), buying the 90 in the back month, and selling the 30 in the front one. I'll work this puppy like a covered put ... .
GBTC - More to rallyGBTC - Bitcoin for your IRA (Basically)
Green targets are representative of bitcoin $4400, $4800 and $5100 figures for this rally.
Current price has passed 1.618 advancement. Next targets are
$5.51 (bitcoin $4400) (+10% from current)
$6.18 (bitcon $4800) (+25%)
$6.85 (bitcoin $5100) (40%)
Then expect one last bitcoin correction down to $2800-3100 ($3-4 GBTC price) and an acculturation period which can last several months (October 2019 begin of new bull super cycle?)
$WDC - Monthly / Weekly Wave 3 - Breaking through key fibs soonThe trend is definitely your friend in WDC. 163 price target of extension. Very deep wave 2. Excellent dividend to boot. Could be a game changer added to a long retirement portfolio. Digital media storage is not going anywhere for the foreseeable future as Euclidian Physics still dominates Moores Law. When the Qbit becomes common place - reassess this company. Sandisk purchase resulted in tremendous amount of IP and positions WDC as a leader for next 10 years.
LONG-TERM ACCOUNTS: 2017 401(K)/IRA SPY SHARE ACQUISITION LEVELSFor what seems like eons in the scheme of things, I've been working an IRA that is predominantly made up of SPY covered calls. Each month, I basically just look at selling calls against my shares to reduce cost basis in them and to give me a bit of some downside protection in the event of a sell off.
Additionally, every quarter, I look at the long-term charts and examine whether I should change my outlook and acquire additional shares and, if so, where I should start to think about doing that. At best, I look to add shares on an infrequent basis and at during fairly large sell-off events (Brexit, first rate hikes, etc.).
At the beginning of 2017, I figured acquiring additional shares around the 2016 range top would make sense, and it looks like there is no reason to change my tune at that level now. Not only is it basically last year's range top, there also appears to be some rough confluence with long-term Fib lines that adds to my confidence that acquiring there wouldn't be "entirely stupid," although a lower level (e.g., 203) would be better since lower is always better when you're long.
To potentially acquire these shares, I'm not going to do so "outright." Rather, what I'm looking for is for the 30-60 DTE 30 delta short put strike to line up with that 215-216 level, at which time I'll sell 215 puts. (Currently, the first expiry in which this occurs -- where the 215 strike 30 delta short put is at 215 -- is in March of 2018, way too far out in time for my tastes to diddle with; so much nastiness can happen in that sort of time frame. If you're curious, though, those are paying 7.20 ($720)/contract at the mid with a resulting cost basis in the shares of 207.80).
Naturally, selling 215 puts doesn't necessarily mean I need to take assignment of 100 SPY shares at 215. I have the option to attempt to roll them down strikes and out for duration if I'm not satisfied that 215 is a good price at that point in time (heck, I thought I was paying "too much" when I acquired some last year at 203).
Notes: I would note that SPY is currently a "heavy" instrument with a block of 100 shares -- which is what you'll need to do a full-on covered call -- at 215 carrying a $21k price tag. Naturally, you can use this type of methodology with a smaller, broad-market exchange traded fund (e.g., IWM), sector exchange-traded funds (e.g., XLU, XRT, etc.), or individual stocks that you want to acquire.
IS THIS THE DIP I'M LOOKING FOR? (401K* ALLOCATION)As anyone with a 401(k) knows, you've got two things you can do with it in terms of investing: you can "allocate" and your can "contribute." When you "contribute," you're basically having a portion of your paycheck taken out and stuck in a fund (usually broad market based) every other week and there is basically no rhyme or reason as to your entry. You "buy" a position in the fund you designate without regard to how high or low it is on the day your contribution is credited to the account. Unfortunately, you can do virtually nothing with the timing of your "contribution."
However, you are able to "time" your "allocations" should you choose to do so. Not everyone bothers; they just "contribute" a set amount that is distributed among the funds they select in designated percentages every paycheck. They may tweak it from time to time to get it to that 60/40 or 70/30 equity-to-bond ratio that all the financial "experts" we pay the big bucks to have been advising us to do since time immemorial. For some investors who just don't want to watch the market, don't know enough about it, or aren't comfortable with monkeying around with their allocations on a more than quarterly basis, this is probably fine
My two cents, however, is that investors who are making these kinds of "blind" allocations into broad equity market instruments without regard, really, to where the market is at are probably pissing away opportunities to allocate at lower prices and are potentially taking relatively "pricey" positions in a fairly sideways market that has basically gone nowhere since late 2014. Put another way, these "blind contribution" investors have been repeatedly taking positions in the market "at the top of the key" relative to the market's trajectory since 2009, which, last time I checked, is generally not the best place to buy.
With these things in mind, here are some basic rules I'm following with respect to my 401(k) allocations and contributions in an attempt to be smarter about where funds go and when:
1. Adjust your contributions so that they are 100% to what most closely approximates a cash position in your 401(k). In my case, this is to a "fixed income" fund; it doesn't make a whole lot of money, but it largely doesn't lose money either.
2. Make allocations to broad equity market funds on dips, rather than "blindly" allocating every paycheck.
3. Keep allocations small. This might be a dip, but some dips get "dippier." My general rule of thumb is to make an allocation of 5% of what is in my "cash" position at a time.
4. Develop a simple "signal" for when you might want to move funds from your "cash" fund to a broad market fund or chart out the levels at which you'd want to make a move.
Because I look at my 401(k) as a "large time frame" account, I look for dips using the weekly chart and am largely a very patient guy as to when I want to move funds. Here, my eyes are currently on the .236 from the 10/2014 low to the 2016 high or 190 (which is fairly coincident with the Weekly 200 EMA).**
So, this isn't the dip I'm looking for to move funds from my 401(k) "cash" funds into broad market funds ... . Yet.
* -- I use the same basic rules with my IRA, although I'm offered more flexibility there in terms of fund availability and the nature of the "cash option" which, is, for all practical purposes, "cash."
** -- Noted on the chart are all allocations to a broad market fund since 2011. Up until August 2014, they were all made on touches/breaks of the Weekly 50 EMA. After the August 2015 meltdown, I'm looking at this as long-term rangebound/sideways between 182 and 220 and am more keen on adding at the low end of this range as opposed to using the 50 EMA, which SPY has already broken).
