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Back To School Sale

Mother's Little Helper portfolio was DOWN today -$2,690.65 (2.76%).

Overall GAIN YTD: -$2,397.91 (-2.40%).

Our benchmark index, the S&P 500 is DOWN -3.46%

"I learned that courage was not the absence of fear, but the triumph over it.

The brave man is not he who does not feel afraid, but he who conquers that fear."

-Nelson Mandela

I made my buys for the year on December 28, 2018, see the new portfolio here (Click Here).

Lots and Lots of Red

Why Back To School Sale? Read to the bottom.

We're seeing a lot of red in the portfolio, but thanks to our positions in the TBT and GLD we're not down as much as the S&P 500, our benchmark. Losing less money than everyone else is nothing to be proud of, but it does help ease a little of the pain. There is nothing in the portfolio that I would change, it's a good time to just sit on our hands and wait.

What's Happening?

The market is still trying to flush out the mess that was created by the investors who thought they could short volatility. This fools game repeats in every business cycle; that doesn't make it any easier to take, but it does need to be said and understood so that the rest of us can relax and understand our own positions in the market. I talked about one of these funds in my previous post, the XIV, turns out at least seven of these 'short volatility' funds have blown up and destroyed all their investors capital. To make matters worse these funds have to sell anything they can in order to pay investors who did manage to get in a sell order.

At the same time all this short volatility non-sense is taking place we have a federal reserve that needs to clear assets off it's balance sheet and is still setting expectations that three to four rate hikes are still on the table. Forget that our new federal reserve chairman Jerome Powell has yet to make his first appearance before congress. Forget that up until this week he's been touted are Janet Yellen the sequel; meaning he'll most likely continue her lower for longer interest rate scheme. Yes, scheme, because interest rates have been held low artificially at the same time the federal government is inserting stimulus in the form of tax breaks. Add in some massive defense spending, infrastructure spending, shrinking labor pool and we have all the ingredients for over heating the economy. Thank you federal reserve and congress, you've done it again.

Is It Different This Time?

The four most hated words in the stock market, 'Its Different This Time'. Well, it is and it isn't. The difference in this market decline is the rate we've fallen, two days, in one week, with declines in excess of 1,000 points. The economy is strong, companies are doing well, the global synchronized growth story is still in tact. The big difference is that the federal reserve is tightening credit while congress is inserting stimulus. That's the equivalent of driving at high speed with one foot on the gas and one foot on the brake. I haven't found an example yet of this economic experiment, but I'll keep looking.

What Do We Do Now?

Not much. Some ideas to prepare for a bottom in the market in general would be to raise cash. The best place to get cash is by re-balancing your existing stocks. Look for out of balance positions and bring them back to neutral with respect to the rest of the portfolio. Just have some cash on hand to be a buyer when we finally find the bottom of this cycle. Also, work on creating a buy list. These are the companies that you really want to own but have been waiting for better prices. You might also have some stocks in your portfolio that fall below your cost basis during this decline giving you an opportunity to buy a few more shares which will lower your basis and give you more upside potential when the market turns around.

Are We There Yet?

No. I'm very confident that we will see more big sell-off days before the market settles down and gets back to rising in fits-and-spurts the way it should. I'm looking for some good buys this summer. There are a lot of metrics that can be used to predict market levels, but since I believe that a lot of what drives the markets is simply human psychology, fear, greed and passion, I like this metric. Below is a chart of the DOW since 1985. Below the DOW chart is the Relative Strength Index (RSI). As I noted in a previous post, the RSI has been above the green line (Over Bought Market) only three times, and below the red line (Over Sold Market) only once. At the far right you see today's data, that sharp vertical drop is the last few days of declines. I think we need to get down to a long term RSI in the range 30-45, which is a long ways from the 67.05 we're at now. Please note that the RSI changes based on the time I select. A 1-year RSI would be 38.31. I'm interested in longer term patterns like the 33 years shown below and the rare cases where the market has moved to significantly over bought conditions and suddenly changed direction. Reaching 30 means that the 1-year RSI will be in over sold territory.

Be patient, nibble on good buys when you can, but keep raising cash into the summer, I suspect we'll all be calling it the 'Back-To-School-Sale'.

As Always

Stay Invested

Clay Baker

Disclosure: I am personally invested long in some or all of these funds that appear in the Mother's Little Helper portfolio or manage these investments for my Mother's portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the MLH portfolio. Since I may on occasion discuss Bitcoin and other cryto currencies I disclose here that I personally own investments in the cryto-currencies listed here: VTI, VWO, VEA, VIG, XLE, MUB, TBT, GLD, Bitcoin, LiteCoin

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.

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