Certain of Uncertainty
“Don't bet on the end of the world, it only happens once and the odds are against you"
-Art Cashin (Director of Floor Operations, UBS Financial Services)
The Portfolio Performance
The portfolio is down -17% YTD
The S&P 500 is down -11% YTD
At the end of this post are some buys and sells. Feel free to skip my blabber to get to my actions.
Certain of Uncertainty
The market has decided that it's completely certain that only uncertainty will persist. Any rational investor thought that all the negative news surrounding Fed rate hikes was already priced in; the market said no to that notion. There are nearly two jobs for every person who wants one and earnings from companies have been good. Investors see that kind of data and collectively assume that rates will go up constantly until the U.S economy calms down. At the same time we're at full employment so the only way to fix the job market is to immigrate large numbers of people and put them to work. That's probably not going to happen anytime soon in our current political environment unless the U.S takes a stand and says, "we're the safe place, come here and realize your dreams". We closed the borders and put everyone to work and we still have millions of open jobs. Until we fill those positions we will continue to experience inflation, particularly wage inflation. Collectively we thought that China fears were already baked into stocks that have declined 50-60-70%; the market said nope, sell some more. We now know that China's vaccines are not as potent as U.S vaccines. We can expect the lockdowns, testing and industry shutdowns will last longer, further depleting China's GDP. By the way, President Xi is intensifying a crackdown on his countries financial industry. Some people fined, some sent to prison, some disappeared. And while all this is going on, Israel decided to use the Chinese Yuan as a reserve currency because they aren't so sure about the dollar any more. The entire China market has become un-investible. The market started to price in Russia not expanding this disgusting, unprovoked war beyond the borders of Ukraine, then late last week we got some chatter that Putin may be looking to expand the war. All these fears are occupying front of brain thinking for investors, so the only solution investors can muster up is sell.
The problem all of us must contend with is just as much structural in the market as it is emotional. The market has a new force, the retail millennial investor. Do not underestimate the collective power of this group of investors. The other is automated, algorithmic trading. 80% of the daily volume of stocks buys and sells are executed on automated platforms that make decisions in milliseconds. These systems can drive prices up, and down, with incredible speed, and often with little appreciation for the valuation of the stocks being bought or sold. The SEC will one day place greater restrictions on these automated trading platforms, but for now, its a market force. In the meantime, Congress is making every effort to restrict the retail investors access to markets and is challenging commission free trading platforms.
When uncertainty, or bearish investor behavior becomes the overriding theme, that's when markets turn around, often with a rip your face off rally. My own thinking is that the market is finding a bottom. If we continue to get bad news the market will sell off more, but any good news, especially political or global macro good news, and we'll see this market rally. For now I'm placing a bigger stake on rising longterm interest rates, cash generation and the continuation of work from anywhere and a job market that needs millions of new workers who will need new computer equipment.
Where am I investing?
Below is my shopping list
RYLD an ETF that sells call options against the Russell 2000 for monthly income.
Logitech for their dominance in computer peripherals amid a trend to work from anywhere.
ProShares UltraShort 20+ Year Treasury (TBT) a leveraged ETF.
Mosaic (MOS) for their dominance in fertilizer.
Deer (DE) as a beneficiary of higher commodity prices.
Amazon (AMZN), Walmart (WMT), Costco (COST) and Target (TGT) for low prices and ability to navigate supply chain disruptions.
iShares TLT (TLT) is an investment that benefits from rising rates and bond buying.
SPDR Gold Shares (GLD) is an investment that invests in physical gold.
XLU an ETF that invests in utilities that is benefiting from rising energy prices.
XLE an ETF that invests in energy is benefiting from higher oi, coal and natural gas prices.
McKesson (MCK) in the healthcare space as a sector neutral position.
Chevron, Devon, Marathon Oil, and EOG resources and the OIH our ETF of oil services companies. These companies have already rallied a lot but there may be some protection in these names for a few months as oil continues to hover near $100 per barrel.
Nvidia, AMD, Marvell, Qualcomm, Lam Research, Applied Materials, and ASML as the only maker of equipment that can produce the most sophisticated chips. The best semiconductor companies will be able to raise prices in this environment.
Northrup Grumman (NOC), Lockheed Martin (LMT) and Raytheon (RTX) as the best defense contractors to invest in as portfolio defense in an increasingly scary world.
Invesco Commodity Index (DBC) is an easier way to invest in a large market basket of commodities that will all see rising prices.
The current market conditions should not change our long-term strategy. The worst decision is to jump in and out of different strategies. While volatility will likely remain in the market for as far as we can see into the future, the current environment will be a short-lived event. By that I'm thinking a few months to a year. The volatility has more to do with the mechanics of the stock market than macro economic events; one is a symptom of the other.
SELL ICLN 1,744 shares @ $19.21 ($33,502.24)
BUY RYLD 4,400 shares @ 22.72
BUY TBT 1,041 shares @ 24.01
BUY LOGI 100 shares @ $66.46
Keep Me Honest 2022
Russia will conquer Ukraine and integrate it into Russia by mid-year 2022.
Standing Note to My Subscribers
I’m going to leave this note in place until I take action to telegraph what I’m planning to do. I’m no longer looking at selling the (GLD) gold position but I am still wanting to sell the iShares Clean Energy Fund (ICLN). We have enough cash in the portfolio that I don’t need to sell the ICLN positions yet. The ICLN provides global exposure to clean energy, whereas the CNRG primarily provides U.S.-based exposure to clean energy.
"Markets don't go to zero, Portfolio's do.
Buy quality, be patient...and look twice for motorcycles."
- Clay Baker
ENTER YOUR NAME & EMAIL ADDRESS TO SUBSCRIBE
Keep Me Honest 2022
Volatility will be greater (measured here by the VIX: https://www.marketwatch.com/investing/index/vix/charts?mod=mw_quote_tab)
Rule #1: Don't lose money
Rule #2: See Rule #1
Rule #3: Portfolios go to zero, markets don't, Stay Invested
Rule #4: When good stocks you own drop 10% below your cost basis, add shares
Rule #5: Bull markets aren't sustained without the Transports
Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase
Rule #7: When an investment bank sells below book value, buy it
Rule #8: Tips are for waiters. Do your own homework.
Rule #9: Don't sell a stock because you're bored with it. Do your own homework.
RULE #10: Being early and being late is the same as being wrong...move on.
Rule #11: Investing is easy. Waiting is hard, waiting is the hardest part.
Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested 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 Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:
AMD, AMRN, AMZN, AAPL, ARKK, ARKG, CNRG, ENPH, FB, GNRC, GBTC, GLD, HRTX, HD, IPOD, MSFT, NVDA, PSTH, TWLO, VBIV
I am invested short in these securities mentioned in this post:
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.