Macro and Markets
Two pieces of news cast doubt on the tax reform this week. While the POTUS was on his Asian tour, the GOP suffered resounding election defeats around the country. It was seen as a firm rejection of the President and his policies. In addition, the Senate’s version of tax reform plan had a one-year delay in corporate tax rate reduction. As far as the stock market is concerned, I remain as suspicious as ever that the tax reform is “priced in”, i.e. not much credence was given to passage, in the present form anyway. The real growth-inducing initiatives that I can see are the repatriation of off-shore profits and faster investment dispensing, both are front-loaded and one-shot deals. As far as the corporate rate that grabs the headlines, multinationals already have so many ways to reduce their taxes. Small caps may indeed benefit which is why the Russell is acting so poorly this year — evidence again that the market has NOT priced in the tax reform. As far as “trickle down corporate rate cuts” to raise labor compensation is concerned, I have a bridge in Brooklyn for sale if you actually believe that. While I stand to benefit as an investor, any wage increase will come from the tight labor market, not lower corporate tax rates.
Against that background, I view the drop on Thursday as nothing more than a natural fluctuation. We’re so used to low volatility that a 1% intra-day move was sufficient to take the CNN Money fear and greed index down to 54, squarely in the neutral range. I’m going out on a limb again to make a prediction on NDX. Below is its weekly chart. I think it has entered into a phase similar to end of Jun’13 to Feb’14 where the index stayed mostly above the 10 WMA and definitely above the 20 WMA for eight straight months. Timing wise it points to a top (not necessarily THE TOP) next April. Along the way, a test of the 20 WMA in early 2018 is to be expected. As a price objective — I’m using the 1.618 extension of the dot com era high (4816) or 7792, equivalent to $190 for the QQQ. This is a refinement of my current market view, so no immediate portfolio change is required.
I got out of $SOXL on Monday with a good profit, but jumped into $LABU too soon and was stopped out. I’m out of $JDST as well. In fact, I’m out of all leveraged ETFs and just going to enjoy the bulk of my $SOXL profits for a while. In PMs, I still believe the intermediate trend is down and the low in January scenario is increasingly likely. It’s just a very difficult environment to trade so I will simply lay off for now.
This week I participated in an IPO. InteractiveBrokers was an underwriter for Sogou ($SOGO), a Chinese search engine. I requested 1000 shares and was allotted 100 @ $13. It closed the week at $13.85, not a blockbuster but I’m happy with any gains.
Current portfolio composition is as follows: PMs 9.8%; equities 56.8%; FI, 22.7%; cash equivalent, 6.2%; and other, 4.6%. The “other” category is composed of crypto, 2.7%, and options, 1.9%. Effective exposure from options is 64.6% of total portfolio value. The option leverage ratio decreased to 34X due to increases in option value. The total portfolio remains over 120% long equities (before considering the beta of each position).
- Measuring the Ivy 2017: A Year in the Upside Down for Endowment Returns from Markov Processes
- Interest Rates will Double by Martin Armstrong
None of the above is investment advice, the standard disclaimer applies.