Monthly Archives: August 2017

Weekly wrap, 8/20-26/2017

Macro and Markets

The week’s low was part of the reversal on Monday. It stopped right at the intermediate trend line and nowhere near to the June low of 2405. Jackson Hole was pretty much a non-event for stocks but gold and bonds were up and the dollar down on the “non-hawkish” Yellen. Next week will be the last chance to take out the June low before the big shots return from summering in the Hamptons. I still see that scenario as more consistent with the post-August “moon-shot” my model has been calling for, but not absolutely necessary.

The Q’s are acting better than the S&P, despite not having leadership from Amazon ($AMZN), Alphabet ($GOOGL, $GOOG) or Facebook ($FB). This rotation is necessary and healthy. It bodes well for the market when the “kings” do return.

Portfolio

For a second week there is no transaction other than the usual 401K/HSA contributions (which ought be assumed as the norm from now on). This level of activity (or lack thereof) is quite normal as my core positions have been established and the time scale of timing decisions are on the order of years. My largest speculative positions are leaps on the Q’s. Once it starts to move the short put legs will require more frequent maintenance but the long call legs will be held for long term capital gains.

Good Reads

None of the above is investment advice, the standard disclaimer applies.

Weekly wrap, 8/13-19/2017


Macro and Markets

As expected the situation in North Korea appears to be calming down, for now at least. Relief for the market was short-lived though when the President’s comments on Charlottesville and the whole-sale defection of CEO’s put the administration’s pro-business agenda in jeopardy. The CNN Money fear and greed gauge was at 19 on Thursday and 17 on Friday, signifying extreme fear. Ironically, taking out the June low (S&P 2405) is probably the best thing that can happen, paving the way for the maniac phase of this bubble. We may get there on next week the way things are looking at Friday’s close. On the bright side, it’ll surely make our more astrologically inclined friends happy.

Alan Blinder was on CNBC talking about the “mysterious lack of inflation”. It seems to me much of the pricing pressure can be attributed to Amazon, with the fear of automation (AI + robotics) suppressing wages. Can it be that obvious? The key take away: he is of the opinion that if inflation stays low, the December hike will be off the table. That will be broadly positive for many assets.

Precious Metals

Spot gold exceeded $1300, for what, 5 minutes (?!) on Friday. I was expecting a pull back above $1300 but not that brief! Though if the stock market tanks next week “traders” (in quotes because those trading gold like stocks don’t last long) will have another chance to load up just in time to be whipsawed again. My main correction targets are $1265/1240. Long term holders need not fret as I believe gold will amble along as the stock bubble enters its mania phase, ready to take over the baton once stocks deflate.

Cryptocurrencies

This is the first truly global bubble where even an Nigerian Prince with an Internet connection and a bank account can participate. The Reformed Broker linked to an interesting video on Bitcoin valuation. I originally bought into cryptocurrencies because I saw the outcome as bi-modal (heaven or earth, nary in-between). Now the positive outcome looks increasingly likely. I expect each of the following to happen at some point: bitcoin ETF, Coinbase IPO, and finally major banks facilitating bitcoin transactions. This is far from the majority opinion as can be seen in this poll. BTW, Mr. Money Mustache is frequented by gen Y early-retirement aspirants. My own expectation is somewhere between the last two choices, or about 1 trillion market cap.

Since the last ramp saw bitcoin going from $1500 to $3000, very simplistically I expect the next pause to be around $6000 which is also Tom Lee’s target for next year. Bitcoin’s daily volatility is hovering around 5-6% vs. about 1% for gold on average. I’m staying with my allocation of 12% to PMs and 2% to cryptocurrencies.

Portfolio

No transactions this week other than the usual 401K/HSA contributions. The July Pimco UNII report came out and numbers were … dreadful. There was an SeekingAlpha article and much discussion on the MorningStar forum. Those funds are indeed black boxes. They have paid off handsomely for me but I harbor no illusion of them being buy-and-hold vehicles. When the credit cycles turns they could drop faster than stocks. That’s the price to pay for reliable increases punctuated by sporadic buying opportunities during more peaceful times. For now I’m holding and watching NAV’s closely.

Among my individual stocks I pay particular attention to the losers believing the winners will take care of themselves. I was relieved that Ross ($ROST) jumped after reporting good numbers on Friday. I’m still vexing over Chevron ($CVX) and Exxon ($XOM), my only energy names. The crude cycle seems finally bottoming but I’m not sanguine about the long term prospects. If I decide to maintain some exposure I’ll switch to a refiner. I’m not terribly inclined to buy into renewables or other “new” energy companies, nor am I looking for yield so MLP’s are out as well. Decisions, decisions.

Outlook

No change.

Good Reads

None of the above is investment advice, the standard disclaimer applies.

Weekly Wrap, 8/6-12/2017

With this post I’m kicking off a new series of weekly updates to appear each weekend. For now this is a new experiment so the format will be fluid.

Macro

All eyes are on the escalating tension in North Korea this week. If history were any guide, some kind of d├ętente is to be expected. Even if rationality fails to prevail, IIRC, stocks rallied when the bombs started to fly at the beginning of both Iraqi wars. There is the risk of US appearing to sink to the same level as the NK brat with the weird haircut while China and Russia look like adults (may already be the case anyway). But it’s an outcome infinitely more palatable than losing the key strategic outpost (Guam) in the Western Pacific. Conclusion: fade the panic. The bigger take-away is that the rest-of-the-world might continue to diversify away from the USD as a vote of no-confidence in the current administration. Any weakness in the US inflation data will only cement that view.

Precious Metals

Spot gold exceeded $1265 comfortably on the back of several Presidential tweets, and was able to hold above $1280 in recent days. Normally I’m suspicious of geopolitically driven rallies but given the extreme COT readings a while back I think we’re in the clear long term. Short term there may be a pull back around $1300. If that happens, whatever room left in the portfolio will be directed towards miners.

Cryptocurrencies

Bitcoin cleared $3500 this week, a new all time high. The BCH (Bitcoin cash) hard fork turned out to be a free dividend. It does appear that wider adoption is on the horizon but I’ll refrain from giving price targets. I still plan to gradually sell at set intervals. For kicks I calculated the IRR from early March and it was over 3400%.

Portfolio

Picked up more CEFs on Thursday and Friday on their usual “swoon” that occur every several months. Placed additional directional option bets on the Q’s. The initial margin is at about 1/3 of the total equity in the main trading account but I’m already at my volatility limit. On Thursday the total portfolio dropped 1.4%, roughly matching that of the equity market. But that’s with 12% in stable value funds, 5% in cash, 12% in PMs, and 2% in cryptocurrencies. The latter two had strong gains. Anyway, it reflects the additional risk in the options positions. For the last several months, my overall portfolio managed to gain more and lose less than SPY, that’s a trend I intend to continue.

Outlook

I’m now fully “locked and loaded” for the post-August moon-shot I’ve been expecting. Contrarian indicators abound: there is no shortage of gurus urging caution; the sentiment index shown below (source) is another. If the North Korean situation resolves satisfactorily we’ll be off to the races in the blink of an eye. My overall projection has not changed: in round numbers the S&P to 3300-3500 and the NDX to 10K in 12-18 months. This bubble will be another for the history books.

Good Reads

None of the above is investment advice, the standard disclaimer applies.

Performance Tracking July 2017 and One Year Review

For calculation methodology see this post. Tracking growth stocks and fixed income CEFs started in April’17.

July was an excellent month all around. My total portfolio gained 2.22% exceeding both SPY at 2.06% and 60/40 at 1.37%. The active accounts gained 2.65% and the passive accounts 1.87%. YTD the total portfolio is at 10.71% vs. 11.43% for SPY and 7.89% in 60/40. For the actively picked stocks, growth stocks had a blistering gain of 10% only to be weighed down by the barely negative showing from the DGI compatriots. Combined they delivered 2.46% in July well above the SPY. Since April, my individual stocks are 0.6% ahead of SPY which is exceeding my expectations. In the “other” category, leveraged options are starting to perform although with a high volatility as expected. There were responsible for about 1% of the overall gains — nothing to sneeze at. Cryptocurrencies recovered a little, just ahead a controversial hard fork; though I don’t expect them to move much probably until year-end. It looks to me that institutions are managing the price levels to accumulate quietly.

AllocateSmartly is now tracking 39 different tactical and static allocations. In July, 2.22% would have placed my portfolio at 11th out of 39, while 2.65% would have tied for 6th. YTD 10.71% would have been 8th out of 39. The active accounts’ YTD gain of 13.33% would have been 2nd overall.

This is the 1-year anniversary of this blog which means there is 12 months worth of return data. My portfolio is still suffering from last July to November such that the 12-months performances are still lagging. On the other hand, the YTD numbers are excellent all around, both absolutely and risk-adjusted. The reason for this improvement is several-fold. Adjustments were made in the composition and location of CEFs that I have written about. In individual stocks, greater emphasis was put on growth over current dividend payout. Lastly, the relative performance of the precious metals was a large contributor to “tracking error” — I put that in quotes since the differential in performance is entirely intentional. PMs reached a peak in July 2016, declined hard for the rest of 2016 and are relatively stable in 2017. Below are two summary plots for my main taxable account at InteractiveBrokers. In terms of account value, today it’s over half of my active accounts, So it’s quite representative of the qualitative behavior of my total portfolio.

Both figures cover the period from the end of 2015 to 7/28/2017. The first shows the cumulative gain vs. SP/EFA/VT. My portfolio outdistanced the benchmarks from the start and never looked back. The decline from July-November 2016 is visible. Then the climb resumed and appeared to be accelerating in the last month. The acceleration is due to the leveraged option positions that I initiated at the end of June and continued adding to in July. If the market continue to behave as my model predicts, the out-performance should pick up momentum. Looking at the relative performance of passive with and without PMs (at parity YTD), PMs appear to have finally turned the corner from the decline going back to July 2016. While I expect a lengthy build-up to a blow-off phase in several years time, PMs should no longer be a detractor for performance for the rest of 2017.

The distribution of monthly returns in the second figure is rather interesting. First of all, international (EFA) was bipolar in the last two years. It was barely positive(?) in 2016 and tremendously strong YTD. As such it had both large gains and losses. My portfolio had positive skew and less big monthly losses than the benchmarks. I dare say these were the return characteristic that professional managers would be proud of.