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.
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.
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 $6000 which is also Tom Lee’s target for next year. Bitcoin’s daily volatility is hovering around 5-6% vs. about 1% for gold on average. I’m staying with my allocation of 12% to PMs and 2% to cryptocurrencies.
No transactions this week other than the usual 401K/HSA contributions. The July Pimco UNII report came out and numbers were … dreadful. There was an SeekingAlpha article and much discussion on the MorningStar forum. Those funds are indeed black boxes. They have paid off handsomely for me but I harbor no illusion of them being buy-and-hold vehicles. When the credit cycles turns they could drop faster than stocks. That’s the price to pay for reliable increases punctuated by sporadic buying opportunities during more peaceful times. For now I’m holding and watching NAV’s closely.
Among my individual stocks I pay particular attention to the losers believing the winners will take care of themselves. I was relieved that Ross ($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.
- Diversification And Outperformance: The Biggest Lie In The Investment Business from ValueWalk — focused (stock) portfolios perform better
- Academic Research Insight: Diagonal Models versus 1/N Diversification research review from AlphaArchitect — use volatility parity and forget about asset correlations (off-diagonal terms) which are time-varying anyway?
- The Unsolvable Puzzle by Morgan Housel and Everyone Gets Arbed Eventually by Josh Brown — hope for the discretionary portfolio manager?
None of the above is investment advice, the standard disclaimer applies.