At the very core of my philosophy with respect to investing is that markets inherently push investors into terrible decision making cycles by functioning in a highly counter-intuitive manner, taking advantage of emotions and thought patterns that are rewarded in most other endeavors.
If one believes the aforementioned to be fact, then one must also believe that the entire ecosystem that has been developed around Wall Street is simply a further tool to foster terrible decision making that run counter to an investor's best interest. The news flow, the analysis, the talking heads, the hedge fund manager who has four yachts. Everything that is seen and heard drinks from the same well.
As a result, in order to successfully navigate the terrain, an investor very simply can't believe anything that is prominent within the popular news cycle. That very same news cycle has been existent since the beginning of time for the markets. Now more than ever, that news cycle is instantaneous. Investors still lose massive amounts of capital by feeding into it. If there is such a thing as fake news, Wall Street invented it.
Bringing me to the point of this note: The hysteria that has developed around a weakening economy, recession, yield curve, corporate debt etc. will be viewed as silly by the middle of 2019. It is typical of a news cycle that is curve fitted around price action, which further drives the news cycle and feeds further into the price action. In other words, a self-reinforcing vicious cycle of poor research that leads to poor decisions among investors.
The markets, as dictated by the purest form of information possible - price - are telling a completely different story than what most everyone is talking about currently. It's a positive divergence that should lead to higher prices in the weeks and months ahead.
This has led me to take profits on our gold and silver names, a trade we took approximately 1,000 basis points out of in roughly one month time frame. The decision to remove metals for the fund has nothing to do with my long-term opinion of their viability as an investment. I continue to believe that metals represent one of the best risk/reward investments in the market today. However, I am focused on performance. Over the next several months, our capital is better served in investments that are heavily skewed towards "risk on." That means that I want beta in our portfolios. I want to be exposed to the equity markets because I believe they are about Space Shuttle it out of this atmosphere in the next few months.
We've taken positions in everything from JPM, USB, EIGI, NFLX, MSFT, PAYC and several others over the past couple weeks. I also shorted TLT on Friday with the belief that the interest rate markets have gone borderline insane with post traumatic stress syndrome of past financial crisis situations causing a disproportionately unreasonable negative reaction that will be unwound in a big way in the months ahead. Accepting a 2.6% yield on the 10 year is going to look awfully silly in the face of accelerating equity prices with dividend yields in excess of 3%.
To summarize: What is being delivered as fact in the financial media, fintwit and most other places are simply snowballed emotions among naive market participants. This has led to an extraordinary opportunity to get long equities in the face of what has become a dark circus of pessimistic clown tears.
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