Category Archives: Wealth Management
All Time Highs
By some marvelous act, I managed to breached my prior account highs today, without even being full long in the markets. It is a queer thing, sitting on 30% cash with SCO and EUO and yet still discovering that you’re making money every day.
I’m not greedy – if this bull market could last forever! I would be more than content to sit here collecting half a percent every trading session.
The errors from 2011 are now fully behind me. I lost quite a chunk of my money on a bad oil short then (it was much larger than the one I’m carrying now). That was the first big oil implosion after the 2008-2009 near total collapse, when it fell from almost $110 back down to inside of $80. I didn’t take my gains, instead believing that we were experiencing an epic slowdown (EU). It wasn’t long after that oil completely rebounded.
Energy markets nowadays are prone to sudden collapses that are immense in size. But they don’t last. There’s not resetting based on demand or supply. Rather, buyers pick themselves up from the beatings, quickly absorb the additional supply, and force the price higher again. It’s hard for me to imagine how this is going to work out, undisclosed bidders buying $100 oil when the US is quickly becoming a stable production powerhouse.
But for now, the name of someone’s game is to keep oil elevated. There are so many speculations for why this might be the case, it doesn’t do well to even start getting into them. We are nearing another crash, I feel. Multi million barrel inventory builds going into summer can’t go completely unnoticed. But after the quick money has been made, I’ll move on fast. The price will probably recover going into the fall, after just a few short months; nothing but a blip, in the grand scheme of things.
Timing Tops Is Impossible – Wait For Bottoms Instead
For all the chat about not trying to time tops or bottoms, actually the bottoms comments are unwarranted in the past few years. Timing bottoms is very easy, so far after 2009. You just buy. The average span of selloffs is measured in 1-2 months – not exactly the most trying of circumstances.
But trying to spot the top is almost impossible. The rallies have been so fast, so ferocious, and so long winded that any attempt to short them is simple folly. In hindsight, I would point out that the most severe broad market selloff in a century, beginning sometime between 2007 – 2008 and largely hitting its nadir in 2009, was an equivalent buying opportunity, in terms of raw patience, as shorting the two major rallies off the bottom, first in 2009, then mid-2010. And from 2011 the market has been hit with only ripples, that make it terribly impossible to short the indices.
Which is subsequently why I’m not trying to be short here. A healthy cash position augmented with some mild hedging is the way to go. I may be months early to the selloff, but am betting that at this stage, even foregone gains or some mild gross loss being carried is minimal next to the pain that could be experienced from overconfidence here. And the rewards from being able to buy a bottom are much greater than dumpster diving through whatever picked over scraps I can find.
Whenever we should get a selloff, provided it doesn’t carry with it ominous, new developments, I will then allocate some capital. And the 9th floor shall be all the better for it.
I’m Sitting This Out
My predilection is to remain on the sidelines. Even if we should have a little higher to go.
I bit into this rally in its infancy, back in October. Myself and a few others grabbed the entire length of it, and my accounts show that. There is zero reason to sit around, crying about a few percent missed out on.
Now, the jobs numbers looked good, and so did a host of other things that came out yesterday. But we are still running on Christmas, and this isn’t the first time we’ve had some good jobs numbers that got sold.
Meanwhile, I am watching an exact repeat of what happened last year. Horrible economic numbers that begin in Europe and spread across economic forecasts, causing panic. Eventually, something sets off the euro (bonds, elections, riots), and suddently, the dollar starts to get strong.
Right around the same time, manufacturing and industry reports start bleeding from their faces, and energy use plummets. I don’t know if the two (euro and manufacturing) are directly related, or if it’s just some sort of sick, divine joke. But the two factors intertwine into a web of chaos that bloodlets indices for a quick 10% washout. And by that, I mean, nobody owns the indices, so if you’re stuck with the wrong positions, you get creamed by 20-30%.
I’m staying off the field. I’ll let those of you who were short and doubting until mid January put your neck on the line here.
Positions: 30%+ cash, AEC, CLP, CCJ, BAS, RGR, physical silver
Hedges: EUO, SCO
Staying Cautious About Markets
I can feel the heat radiating from the stretch of my back where contact with the plush leather of the chair catches and redistributes the warmth from my coursing blood. But other than this sink of warmth, the room itself is cold and muggy. A soft grey catches scattered intervals of sunlight, taunting my home with rain.
But signs of spring are beginning to set in; just Saturday, I placed out the containers of growing herbs I keep indoors over winter. They stretched out longingly in the not-quite 70 degree weather, soaking up the rays covetously.
There are few things so satisfying as stretching out in a living room on a warm spring day, the doors all open letting the soft breeze indoors, while sipping on a gin and lemon highball made with freshly muddled mint you’ve just snipped off the plant yourself.
But Michigan being her gruff self, it would appear we have at least another week of melancholy weather to attend to before the truly enjoyable stuff sets in.
In markets, I’m naturally irritated by the rally trying to kick back off again. No one likes to miss out on gains, and the appearance of defeat gets under my skin especially. But I can’t bring myself to run back into the market. I made a small purchase of BAS after their earnings, and a buy of RGR before that, but that’s been it.
Holding down with this cash takes a firm level of dedication. It is not easy and constantly tempts to be spent. This is part of maturity and patience – something which plenty of people never seem to develop. It’s made easier though when remembering last year, and the year before, when anyone caught long without a cash position was cudgeled relentlessly going into the summer.
I am eyeing the green numbers of the tape with a wary stare. For now, the only piece missing for a selloff is the presence of enough longs to precipitate it. Will the financial institutions help push their clients into that disposition just as prudence indicates the opposite?
After all, you can’t have a fox hunt without a fox.
The Summer Slowdown Is Coming
Here is all you need to know. About 40 minutes ago, the Energy Department reported that oil stocks were up another 900,000 barrels. Inventories currently stand at 4.2% higher than last year, which if I recall were higher than the year before that. Prices are rallying, because the move is “less than expected”. That’s great, but this is just the beginning.
At the same time, gasoline demand has fallen through the floor. Recession is setting in in Europe. China has been disappointing. And US exports are set to get hit in unison.
My expectation is that May – August will be horrible; an exact repeat of the last three years. I’ll revisit these assumptions midway through any selloff, or if one fails to materialize. As for the Fall; I’ve been caught off guard plenty of times over the last few years, thinking “this is the end”. And each time, trillion dollar money balls and hope manage to squeeze me – this year was the exception to the rule.
Well, I’m sick of the rule, and much preferred the exception. So I will likely consider buying into the Fall. But we need to monitor everything and be very careful. This year is exceptional in its uniqueness; a number of very unusual motions will set in starting 2014, including Obamacare and the end of the line for pension gap coverage is looming. Throw in tax hikes and the waves of retiring Baby Boomers leaping every year for the next decade, and I’m not happy.
But I can be crazy if I need to be. Surely, the Fed is aware of all of these problems, and monetary easing is the preferred course of action over letting panic set in. So even though I’m afraid for what’s coming, sometimes you need to let go of reason and embrace the lunatic’s way out.
Danger Passing For Now, Or So It Seems
I have to hand it to the EU countries. We are now years into this crisis, and still they manage to keep their bonds funded. Spanish bonds are easing back down from the 5% mark that had me on my toes. It would appear that the flare up has been contained…for now.
But that’s not the name of this game. They can save themselves as many times as they like. It would be better to ask, “what are the odds they save themselves every time one of these crises kicks up.” Much like a kid juggling eggs in his mom’s kitchen, the prudent bet is that he drops them. The moments leading up to the inevitable wrath bearing down on him are of entertainment value only.
Gasoline prices are imploding. That is merely a factual statement. I can’t decide what to think about it yet. Lower gasoline prices are inherently good for the consumer, it is true. But following the economic reports we’ve been receiving, and right out of Christmas and the optimistic projection parties that come with that time of year, and I’m not entirely sure of the thing being good.
My preference remains withdrawn defensiveness. Lots of cash, hand picked hedges. And only names of quality that I don’t mind being left holding without a bid.
