Fear and Loathing, Weekly Wrap 10/15-21/2017

Macro and Markets

S&P made new highs everyday of this week, something of a record. RSNBS. This is precisely the kind of behavior required to reach my end-of-year target of 2700 and beyond. There are multiple flag breakout patterns like the one in Russell that portend higher prices to come. This bull market will continue until every bear is decimated and every market-topping sign they point to stretches beyond imagination. The analogy “1998” was made with both the timing and magnitude of the dot com bubble in mind.

With apologies to Johnny Depp, Benicio del Toro, and two of my favorite bloggers, the title of this post was borrowed from the 1998 black comedy of alcohol and psychedelic excess. In particular fear and loathing refer to Josh Brown’s poignant “Just own the damn robots”, and Kevin Muir’s spirited reply “The Winners of the New World Redux”.

Josh Brown’s post, as well as its similarly themed predecessor “Tech Stocks as Career Obsolescence Insurance”, makes the point that the AI/ML/robotics stocks are being bought as insurance against a future where only “engineers and managers” are gainfully employed — “in this context, the FANG stocks are not a gimmick or a fad, they’re a f***ing life raft”. I find there to be more than a grain, more like a boulder, of truth in that. This is from somebody who recently made a career pivot to work on products that have a intersects both IoT and machine learning, and one who is relatively level-headed about both the promise and limitations of these technologies. While not concerned with my own career, I have more than a little angst when I ponder the future of my daughters who are not as math/science inclined as I was at their age. I cannot fault them for being who they are but I’ll be remiss not to worry about their places in a society where every decent paying job requires coding experience.

It took Kevin Muire’s post to pull me back from the brink of loading up on $ROBO. He quotes a Jim Cramer speech from 2000 “The Winners of the New World” where he touted “724 Solutions (SVNX), Ariba (ARBA), Digital Island (ISLD), Exodus (EXDS), InfoSpace.com (INSP), Inktomi (INKT), Mercury Interactive (MERQ), Sonera (SNRA), VeriSign (VRSN) and Veritas Software (VRTS)”. For sure it was a cautionary tale. There is a right price for every stock no matter how strong the fundamentals. Nothing is a buy at any price.

For now at least, my heart or rather my fear falls on the side of Josh Brown. It’s why I took on additional risk when in theory I can coast for a decade and into retirement. To me the current market is the last chance to establish a lasting foundation for my family. The danger, of course, is to overstay the welcome, so Kevin’s words should always be at the back of my mind.

Cryptocurrencies

Bitcoin broke $6000 on Friday. I hadn’t been expecting that until the end of the year. The other cryptos continue to lag as pointed out last week. I have a few crypto-related links below but will not continue this section in the future as my focus will be elsewhere. The plan is still to sell down to 75% of the peak coin holding across the board in December/January, at which point I will have withdrawn more than the initial deposit made in March. I’ll then sell 2.5-5% at regular intervals once public participation starts.

Gold

Last week I wrote “$1307 and $1320 are likely upside targets for the current move”. Spot gold topped out at $1306 on Monday and likely started C of an ABC decline. There are two likely scenarios: A) continue moving down below the July low of $1204 around the December FOMC meeting on 12-13th; this intermediate low thus becoming the yearly low coinciding with a short 63-week/13.5-month cycle; B) the current leg finding a bottom around $1208; one more low in January for the normal 63-week/13.5-month cycle. They are drawn as the solid and dashed lines in the chart below. Of the two, scenario B is harder on trader’s psyche thus more likely in my mind. COT data should provide us a confirmation. The easy money continues to be in stocks.

Portfolio

The week finished strong and the Activision Blizzard ($ATVI) I picked up last week came above water. The 65 strike puts were rolled forward 1 week and down to $63.5. Consumer staples Philip Morris ($PM) and Kimberly Clark ($KMB) missed earnings and were duly punished. Biotech ETF ($XBI) was another blight in an otherwise strong portfolio. Month-to-date the individual stocks gained 3.61% vs. 2.34% for the SPY. I like to focus on the losers, sometimes even force myself to take losses when my own hubris becomes unbearable. That point may be reached soon.

Pimco multi-strategy CEFs were under pressure after a hit piece on $PCI appeared on SeekingAlpha. The author didn’t seem to know anything about interest rate swaps. I can’t say I understand them either but at least I know what they are which is more than the author can say. The issue of under-earning the distribution was flagged here a month ago and was extensively discussed on the MorningStar CEF forum, my go-to source for CEF information and knowledge. The NAVs of these funds remain strong and I’m satisfied with that. Friday’s data indicates Pimco is doing a terrific job navigating the current rate environment. These are managers who can easily command 2-and-20 and I feel lucky to only have to pay a 2% management fee. I took the de minimus cash left in my solo 401K and added $PCI. I wish I had space for more.

Good Reads, Crypto Edition

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