Our readers give their take on digital money

  • Your views on digital money
  • The ‘Overnight Dividend’ Secret (Part II)

We’ve written a bunch about digital money in recent days.

So much that we fear repeating ourselves.

But when a concept is so ‘crazy’ and ‘incredible’ (words used from readers in the letters below), it’s hard to find something new to say about it.

All we can do is stare in wonder as we hear the clamour from the mainstream about the need and necessity of central bank-controlled money.

But enough of the mainstream view. Yesterday, we asked for your view. So today, we’ve printed a selection of the letters we received.

Tomorrow we’ll print some more…and again next week, until the flow of letters dries up.

But before we get to that, let’s check out what’s going on in the markets…

Markets

Overnight, the Dow Jones Industrial Average closed up 41.23 points, or 0.23%.

The S&P 500 index gained 6.76 points, or 0.31%.

In Europe, the Euro Stoxx 50 index added 4.08 points, for a 0.14% gain. Meanwhile, the FTSE 100 closed down 0.17%, and Germany’s DAX index gained 0.26%.

In Asian markets, Japan’s Nikkei 225 index is up 116.21 points, or 0.72%. China’s CSI 300 index is down 0.48%.

In Australia, the S&P/ASX 200 index is up 37.48 points, or 0.69%.

On the commodities market, West Texas Intermediate crude oil is US$41.30 per barrel. Brent crude is US$43.54 per barrel.

Gold is US$1,355 (AU$1,781) per troy ounce. Silver is US$20.36 (AU$26.76) per troy ounce.

The Aussie dollar is worth 76.07 US cents.

Your views on digital money

Before we go on, just a reminder that today’s Port Phillip Insider includes the second part of a three-part interview with ‘Overnight Dividends’ expert, Matt Hibbard.

Make sure that you check it out.

Until then, here are a selection of letters from our readers, with their take on digital money.

To recap, central banks are now seriously looking at the idea of abolishing physical cash. That would mean no more notes or coins.

All money would be in digital form. It would mean the end of ATMs, and it would serve a deathblow to the manufacturers of purses!

(It would also mean an end to the nice surprise of finding a dollar or two down the back of the couch, but never mind.)

Your employer would pay your wages or salary into the bank, and it would remain there. Whenever you needed to buy something, however large or small the price, it would be by electronic means.

Now, that may not be so different to how you do things now. The difference is, under a central bank-controlled digital money, the central bank would be able to control when and how much you spend or save.

This is the scenario I’ve laid out in recent days. The central bank would abolish interest rates. In their place, you would have a ‘fluid’ bank balance. When the central bank wanted you to spend, it would warn you of its intention to debit your account.

It may only give you a few hours’ notice, if the central bank thought it necessary. You would have a choice: either spend now before the central bank devalues your savings, or continue to ‘save’ and see the central bank reduce your balance.

What a choice!

As I’ve acknowledged, it may sound pie-in-the-sky, crazy, or impossible. But I don’t believe it’s any of those things. In fact, I believe the move to central bank-controlled digital money is inevitable.

And much to my surprise, many of our readers do too. Evidence of that is in the letters we’ve received. If you have some views on the trend towards central bank-controlled digital money, be sure to share them with us. Drop us a line to letters@portphillipinsider.com.au and type ‘Digital money’ in the subject line.

Now, let’s get to the reader mail. First, this note from subscriber, Leo:

It is such a crazy idea that I find it too incredible to comprehend intelligently. However, given current out of this world strategies, I believe it will be implemented.

The problem for the decision makers is “How much is enough?”.

It won’t work and will end in disaster.

If the “deposits” have no strings attached, how about all sensible recipients using it to invest in gold?

Let’s encourage the decision makers to agree on $1m plus deposits in every bank account.

What a circus!

Subscriber, James offers this opinion (the reference to a particular person has been redacted for fear of a defamation claim!):

Anyone who is not actively buying physical gold right now is asking for the government to control their money.

I am not waiting around to see what happens…I do not trust the RBA or politicians.

‘[Censored] is incompetent and/or a liar to tell the Australian people that the Australian economy is not headed for a major recession or dare I say depression within the next 12 to 18 months.

Government controlled digital money is the greatest threat to our individual freedom that I have seen in my lifetime of 65+ years.

This from subscriber, Greg:

I am intrigued by your scenario, and also rather perturbed.

For a number of decades now I have heard cash is dead (which has not happened to this point) all under the guise of getting rid of tax avoidance lol which large companies have down to a fine art. Us little people like to avoid what we give to Government via cash transactions and let’s face it, there are far more little people in society than the elite that seem to make these stupid decisions regarding monetary policy.

The world is finite. That is supply vs demand as you well know, and we have an imbalance of excess supply to the worlds sucker consumers’ demand, or perhaps ability to pay for.

Everyone wants to be a boss in manufacturing, not a worker, so they cut each others’ throats to maintain market share, and in doing so go broke.

Digital money is not going to solve anything as the greater populace will draw down bank accounts and go back to barter for service and provision of service and goods, keeping it off the books. Fact is the greater populace are the stupid ones that provide most Government income.

Should we see digital money and an ability to control our bank accounts, expect blood in the streets. They better be prepared to increase their police forces. In finishing I suspect that Turnbull’s desire for an early election on the excuse of the CFMEU and the senate was motivated more by his expectation that the financial collapse is coming and he wanted to get voted in before it happens.

Just my opinion Kris

We received this letter from subscriber, Oliver:

When Krudd gave the great unwashed a handful of cash, I happened to be walking down the street in my country town a couple of days later.

In front of me was a couple pushing a trolley from Coles, which was about three blocks away from where we were at the time.

In this trolley was a plethora of consumer goods, I suspect mostly made in China. Not one item had been sold in Coles.

Things like widescreen TVs and stereos.

A boost for Australian jobs?

This money had been spent on supporting industries in other countries.

Couldn’t the Government have spent the money on infrastructure projects that would have boosted our economy into the future?

I rest my case.

I’ll make one quick point on the infrastructure argument. People frequently argue for more spending on infrastructure in the belief that infrastructure provides a solution for an economy’s woes, because (they say), infrastructure spending will help boost the economy.

The reality is that such an argument is putting the cart before the horse.

Infrastructure, like all other public services, is the result of a growing economy. It doesn’t create or cause an economy to grow.

The US expansion to the West and the industrialisation of England didn’t start with people building railroads or bridges.

These things came after. It was only after Western expansion and the Industrial Revolution had already begun that it become clear that infrastructure was necessary.

Once businesses had started to produce goods, they needed to find a way to transport those goods as quickly and in as large amounts as possible. Hence the building of roads, railroads, bridges, and so on.

Australia already has good infrastructure. Building more infrastructure won’t boost the economy, unless there is economic growth and output that can benefit from it.

That’s the problem. Furthermore, infrastructure spending isn’t just a one-off cost. It has recurrent maintenance costs. Politicians can get a big one-off boost to their popularity by spending billions on a new road or airport, but who will pay for its upkeep? The answer, my friend, is usually the taxpayer.

The last letter for today comes from subscriber, Jim:

Couldn’t agree more. Central bank controlled digital money (CBCDM) is a very real possibility. As the world hurtles towards its debt-driven financial Armageddon, treasurers are desperately casting around for the funds needed to finance the standards of living that constituents have come to expect. Raising taxes is political suicide and provides low-hanging fruit for political rivals. Cutting spending brings on the wrath of the interest groups affected as well as the confected indignation of opposition parties — despite the often stark evidence that such fiscal policies are the most appropriate route of last resort for the nation. Democracy is ill-suited to deal with the current crisis since self-interest dominates voting patterns. Clearly, too, mainstream economics is floundering to cope. This is totally unchartered territory for it. Keynesian pump-priming and Friedman’s monetarism were framed for another world. Quite frankly, as a former Queensland treasurer confessed to me in the midst of a recession 30+ years ago, ‘Nobody knows what to do.

Given these circumstances, politicians wresting back control via freedom-destroying totalitarian strategies such as CBCDM becomes a very real, though frightening, possibility.

There are plenty more letters waiting in the mailbag. We’ll get to more of those tomorrow.

But for now, read on, for the second in a three-part interview series with ‘Overnight Dividends’ expert, Matt Hibbard. In part two of ‘Overnight Dividends’, Matt Hibbard explains why options are so misunderstood, why they are a great tool for long-term wealth

Cheers,
Kris

……………………………………………………………………………………………………..

The ‘Overnight Dividend’ Secret (Part II)
An Interview with ‘Overnight Dividend’ Expert, Matt Hibbard

[NOTE: We’ve resisted the urge to overly edit this interview. What you’re about to read is Matt’s unadulterated response to the questions we put to him.]

So how do you ‘scalp’ overnight cash from the market?

How do we go about entering the market and scalping $200, $300, $400 out of it every couple of weeks?

Using a financial product called an exchange-traded option.

It’s something that scares off a lot of people, but it’s actually one of the most versatile, and, in terms of long-term wealth-building, one of the most useful investing tools you can use to generate income.

What exactly makes options a useful tool for generating income?

Let me put it like this…

When you go and buy a big stock, you’re usually buying it to generate an income — a dividend — which might come two times a year.

But with an option, you can pretty well choose when you go into the market to generate that income.

You might go in every couple of weeks and make $200–$300 out of one particular stock. You might do it three or four times a year and try and make $400–$500 out of it.

And you get to choose when you go into the market to do it. You’re not waiting every six months for a dividend to come your way.

Of course, options can be risky if you use the wrong strategies.

But the ‘Overnight Dividend’ options strategy I’m going to show you is a non-leveraged way to trade them.

I first started trading options 20-odd years ago. And I’ll admit the thing that attracted me to options is the big leverage you could use with them, and how you could make a big amount of returns.

But I quickly learned that’s not where you make money in options.

The money in options comes from the other side of the trade.

Think of it like a casino. Each week punters pile into Crown Casino, hoping to get a big return. The reality is the casino always wins over time. It’s the law of probability. And it’s the same with options.

Option buyers aren’t designed to win over time. It’s the people who take the other side of the transaction that do — which is what we’re going to do. That is what generates returns regularly over time.

In short, we won’t be going out and buying options and speculating, trying to go for big hits.

We’re going to be ‘the house’. We’re going to be the one taking money out of the market for regular, consistent amounts of money…$200, $300, $400 every couple of weeks, every couple of months, or whatever timeframe you’re working on.

Why should investors look into options?

Options are one of most versatile products in the market, and this is why I absolutely love them.

You can use them for any market condition. In any up, down or sideways market…you can find options strategies that will generate an income for you in the market.

We all know that buying shares and holding on to them can be pretty up and down, especially in a bear market. But the idea about an option is that you can use them to generate money in any type of market condition.

That’s why I think you’ll find this strategy particularly appealing.

Why do options put off so many people?

They either don’t understand them, or they’re put off options by a scary story they’ve heard. But the reality is that most people use options every day of their lives.

If you have car insurance or your house is insured, then it’s a type of option. You’re taking in an option with your insurance company. You pay them the premium. In return, if your house burns down, or your car crashes, they’ll replace it or fix it up.

Everyone uses options every day of their lives. But when it comes to share options, most people are put off by them. They’re nervous about them.

But what we’re going to do with this strategy is use the most basic form of options strategy there is. It’s something you and I can go and do tomorrow, next week, or next month…and know we’ll get paid within 24 hours.

Rather than buying options to speculate and make a big profit, we’re taking the other side of the transaction, using options to generate income.

How do you use options to put yourself ‘on the side of the house’?

Let’s go back to the example I used about insuring your house.

When you take out an insurance premium in your house, you’re effectively buying a ‘put option’.

You’re buying an option that allows you to have your insurance company pay you if the house burns down.

We’re essentially doing the same thing with shares. But instead of buying the option on the share upfront…we’re going to be SELLING them. We’re going to be the insurance company.

So we’re the ones taking the premium, and we’re doing it consistently over a period of time.

Can you explain that in more detail?

Like I said, most people use options every day of their lives without even realising it.

If you ensure your car, your house, a boat, or even if you take out travel insurance…it’s a type of option.

You’re paying a premium to be protected if something happens.

But in reality, how often does it happen? How often is your house burnt down? How often have you crashed your car? That’s why insurance companies are among the most sought-after businesses in the world. That’s why Buffett has built his whole empire on owning insurance companies. They’re taking money upfront for an event that might never happen.

When it comes to our options strategy, we’re the ones collecting the premium. We’re the ones who are generating income regularly, taking the other side of the transaction.

But aren’t options risky?

A lot of people view options as risky, and I understand that. And they can be very risky in the wrong hands.

The wrong strategy can actually cause you a lot of damage. And I will teach you how to avoid using the wrong strategy.

As I said above, you’ve got to look at options from the other side of the trade.

You’ve got to look at them from the conservative side, generating small amounts of regular income, rather than going for big hits with the sort of strategies that don’t ever work.

We do not trade options on stock number 100, or 150, or 200 on the ASX index.

We do this on some of the biggest and best stocks in Australia. The blue chip shares. The ones that pay you dividends.

We won’t speculate in options by buying small companies that could go broke tomorrow.

We’re talking about using options on companies like ANZ, BHP, Westpac, Westfield and Telstra…the biggest companies in the market.

Why is it important to only trade the big stocks?

The reason why we only trade the big stocks is because they are the companies that are going to be here for the long haul. They are companies that lots of people already own, and their markets are liquid.

Liquidity is a very important thing when it comes to trading options.

With our particular strategy, all we’re going to be doing is looking to trade options on these biggest blue chip shares in the market.

Is it difficult to get your head around options?

No. You’ve just got to break it down to the basics.

Of course, you can make options strategies as complex as you like.

In fact, there are hundreds of strategies you can use!

We’re using the most basic one there is — the most simplistic one to understand.

Really, when you get your head around it, you’ll ask yourself: ‘Why have I not thought about this before? Why doesn’t everyone else do it?’

In the US, Warren Buffett uses the same strategy that I do. In fact, Warren Buffett used his strategy to build up his stakes in Coca-Cola, writing options to build up great stakes in great businesses.

He did that to build up his stakes in his railroad companies.

As you’ll begin to see, it’s a very standard strategy. It’s not something we’ve invented. This is not a new strategy. It’s something that’s probably one of the common ways of generating income when it comes to the options market.

And that’s why this strategy is something that anyone can use.

Anyone who’s in the market now, who’s got money invested…could use this particular strategy.

You just need to set aside a certain percentage of your portfolio account. And once you get your head around it (and I’ll be giving you trades and recommendations on exactly what to do), any person could use that to generate income from the market — repeatedly.

How much trading capital do you need for this to work?

For this strategy, I’d recommend having at least $20,000 in your account to make it worthwhile.

If you sell a stock option and it gets ‘put’, you need to be able to buy those shares.

What we’re doing is using a strategy where you have all the cash there to buy the shares if they do get put to you.

This is another mistake people make with options. Just as investors speculate by buying options they think are going to go up quickly, people also speculate on the selling side. They sell options with high premiums on high-risk shares they don’t want to own.

And sometimes they don’t even have enough money in their account to buy those shares if they do get put to them. That’s a risk if you don’t use the strategy correctly.

But we will not do that.

We’re doing something called ‘cash covered puts’, which means you’ve got to have the money in your account. That way, if the shares do get put to you, you have the funds readily available to settle on that transaction. If shares get put to you, it’s no different to buying shares in the market. It’s a T+2, meaning that you have two business days to sell the transaction.

I can’t emphasis enough that this is a long term income-producing strategy. Our aim is collect the premium — the Overnight Dividend. Then we rinse and repeat. If we do get ‘put the shares’ and buy them, we then collect dividends. And then there’s a third part of the strategy, which will enable us to sell call options against them to keep generating income. But I’ll explain more about that in the third part of this series.

What if I’m new to options?

Don’t worry about it. If it all sounds a little bit farfetched, or a bit difficult to get your head around, I’ll go through this step-by-step so you understand exactly what we’re doing.

I’ve always been really big on knowing what your risk/reward is at any point in time — dating back to my trading days. Every recommendation I’ll give, and every explanation I give relating to the strategy, will always show you exactly what the risk/reward is so you know what you’re getting into. That’s my role — to make sure you’re comfortable and familiar with the strategy, and what we’re doing at every step of the journey.

Are options difficult to trade?

It’s no more difficult than actually buying a share, once you get the hang of it.

If I go into my CommSec account, it’s just a buy and sell order on a different page, the details of which I’ll provide you with.

Every recommendation will have exactly what you need to do.

You just need to punch in the relevant details on your online brokerage account, hit submit, and away you go.

I’ll run through the process with you, so you don’t need to be concerned about that. It’s just a matter of getting familiar with it.

My role is to teach you what to do, making sure you’re happy with everything. Once you’re familiar with it, you’ll be able to go into the market week in, week out to generate cash for yourself.

To sum up…what’s the main aim of this ‘overnight cash’ strategy?

In short, we go into the market to generate regular amounts of income…$200, $300, or $400 by selling put options in the market.

If we do get put these shares, we then generate dividend income from the stocks.

But the thing that excites me the most about this strategy is that you’ve got the potential to generate multiple income streams from one stock.

And that’s what I’ll discuss in the next instalment of this series.

KEEP AN EYE OUT FOR PART THREE TOMORROW.