Macro and Markets
Another week, another set of all time highs. Readers of this blog should not be surprised — I’m going to use this acronym RSNBS from now on to save me some typing. The leading stocks, Apple, Alphabet, Amazon, and FaceBook are all pointing up so the rally has every reason to continue. In March, I wrote that I expected “the S&P to end the year with a 27 handle”. The expectation stands and now looks to have a very good chance of coming true. FWIW, my model does not forecast a pause until well into 2018.
My modus operandi is in direct violation of the cardinal rule of making predictions: price or time but never both. Naturally only a no-name blogger with nothing to lose can afford to do so. More to the point, the predictions are not made to gain a reputation, but rather to make money which is only possible by being right, early, and backed up with capital. This week was a continuation and confirmation of the trend, where the CNN Money Fear and Greed index retreated form 95 to 73 without any discernible mark on the indexes. On investing forums there are people left and right talking about going to cash or bonds or even shorting. Then there are articles and commentators like this on Zerohedge. Once again I had to remind myself that famous saying from Jesse Livermore, “It was never my thinking that made the big money for me, it always was sitting.”
Switching topic, above is the long term price chart of West Texas Intermediate ($WTIC). The range between $40-60 goes back to 2015. Shale should continue to cap the upside in short to medium term and longer term auto electrification is definitely a headwind. I’m not in the camp of $5 oil nor do I believe the long term effects have been priced in. I would suggest a re-reading of Morgan Housel if you believe prices reflect all available information. Investor with different time horizons can value the same asset differently. Since the asset can have only one price at any given time, it will be above some investor’s fair price and blow some other’s. QED.
Anyway, $55 or even $60 look achievable looks achievable in the current cycle at which point I’ll exit my Exxon ($XOM) and Chevron ($CVX) positions.
Bitcoin broke to new highs with volume this week. RSNBS. Initially other cryptos were sold but they eventually followed suit. BTC dominance is back above 50% again and there is less correlation between cryptos. All these point to a different trading regime which is in agreement with my theory that there is a new set of buyers to start a whole new bubble.
Gold had a strong bounce this week although I maintain we’re still in an intermediate cycle down. $1307 and $1320 are likely upside targets for the current move. In the last weekly wrap I brought up the the 63-week or 13.5-month cycle. A full length cycle will put the bottom in Jan’18 but it can run a little short and the current intermediate cycle can extend to coincide in December, making a year-end low third time in a row. The year cycle low, whether in December of January, could break the July low of $1204. Likewise, COT is saying we’re not ready to head back up yet. For now the easy money is definitely in the stock market.
$PCQ continues to trade at a premium of around 22%. I ended up buying the Nuveen CA muni fund $NAC. It has a lower yield (5%), but a 5% discount and better liquidity. The dividend has already been cut twice since July so I hope it’s safe for now. With CA muni in demand there just aren’t many attractive CEF options. Elsewhere I continue to manage the short put leg of synthetic type positions, this time taking advantage of the rally in Alphabet ($GOOGL). I also added a synthetic long in the Biotech ETF ($XBI).
Activision Blizzard ($ATVI) took a beating this week ostensibly due to a negative report from Canaccord that had a pretty speculative reasoning: its Overwatch eSports league not meeting expectations. I bought the stock as it touched the lower Bollinger band. Previously I sold 65-strike puts expiring next week and will probably roll them out. My interest here is for fundamental reasons — video games are the opium for the mind. Easy-money fueled asset bubbles are giving young people everywhere a raw deal. The plight of young man in our society is well known, the latest report links low marriage rate to their not making enough money. Others have reported they play video games rather than getting a job or a girlfriend. Back in my college days I had a phase with Doom that thankfully ended. Quality of games today is vastly superior. Their hold is likely to continue, even if, or especially when, Universal Basic Income becomes a reality.
You may accuse me of being callous, trying to profit from a pre-Matrix dystopia. The fact is I cannot and will not invest for a world I want to live in vs. a world that I do live in. An ESG investor I am not. I’m more like a fish in the ocean having to go with the current. The best this fish can hope for is to jump out of the water once in a while, and in that fleeting seconds before falling back see a little further ahead.
- Does Cutting Taxes on the Wealthy Lead to Greater Growth? by Michael Pettis from the Carnegie Endowment, formerly of China Financial Markets fame: ideology-free clear thinking.
- Barry Ritholtz interviews Paul Wilmott
- Tactical, But When? by Corey Hoffstein of Newfound Research
None of the above is investment advice, the standard disclaimer applies.