Three Reasons Getting Long Equities In August 2019 Will Come To Be Seen As A No-Brainer In The Future
When looking back at this time some years from now when the Dow is at 60,000, inflation is screaming and the Federal Reserve has been replaced by an algo that perpetually pumps the economy with fresh hits of QE in various shapes and forms, investors will in hindsight point to several things as being no-brainers for getting long equities in August of 2019 and staying long. When looking back here is a list of items that will be seen as no-brainers, to avoid having to ask "how did I miss getting long stocks in August of 2019?": Stock dividends are yielding more than the 30-year Treasury bond for the first time in a decade. Not since pretty much the exact bottom of the financial crisis has this taken place. What does this mean? Without mincing words, it means that the current generation of mostly institutional investors are the biggest imbeciles in the history of Wall Street. It also means that they will be exposed like an episode of Cheaters in the coming months and years, with their investors chasing them out of fixed income securities much like many of the spouses chased mistresses out of cheap motel rooms with camera crews in tow. We will not have the privilege of camera crews, but will certainly witness the effects through observing how far up equities shoot in response. The Federal Reserve and all global central banks for the matter are cornered. This is perhaps the least discussed yet most relevant reason to be bullish here. Remember the old adage "don't fight the Fed?" Well, just imagine "don't fight the Fed" when the Fed and all of their buddies from Japan to Europe are fighting for their lives. They have to prove their relevance. They have to make sure they pull every string possible to ensure that developed economies don't fall into a recession. Why? Their toolbox becomes increasingly limited the further into a deflationary spiral we go AND there is so much disdain for global central banks at this juncture that they may well be burned at the stake, replaced by algos and CEOs of the top global banks, if the economy goes into a really dark place. This is the era of "don't fight the Fed when it has rabies and is about go into a roid rage" phase. They are going to do everything and I mean absolutely everything to boost the economy and the markets. Everyone is worried that everything is on the verge of collapse. Markets function on psychology PERIOD. It's why economists teach at universities and appear on CNBC a dozen times per day instead of...
Macro Induced Chaos and A Tweet Happy President
There isn't a person on Earth who has experience in this type of market. It doesn't matter if your great great grandfather is 120 years old, having traded RCA and Standard Oil during the 1929 crash. It makes zero difference if you've binged on 72 hour runs of trading Dollar/Yen through JGB interventions until you passed out onto a desk with cocaine residue, empty Red Bull cans and five Quotreks. This market is brand new for all of us. None of us truly know how to deal with it. All we can do is to adapt as best as possible. Here is a portion of what I sent to my subscribers and investors this weekend as we prepare for continued Twitter driven financial market pandemonium in the week ahead: How does an investor mitigate this newfound reality of trading in 2019 where one single Tweet can, without any warning, completely change the investment equation over the short-term? While the conditions may seem less than optimal given the unpredictability of the players involved, there are always adjustments that can be made: Expectations for what constitutes acceptable amounts of volatility must be increased Position sizing must be reduced Diversification in one form or another must be employed Dry powder must be kept in order to capitalize on sudden dislocations News events must be ignored as everyone is reacting to the same bits of information in the same way If the market has demonstrated anything in 2019 with some consistency it's that the initial reaction it has to trade related dilemmas isn't necessarily the right reaction. The markets have become caught in a vicious cycle of initial emotional reaction to a tweet or a press conference, followed by intelligent dissection of how the overall macro picture is shaping up with the initial emotional reaction seeming a lot less relevant upon careful consideration. This has caused huge moves down to get reversed in a too fast, too furious fashion to borrow a term from the President who happened to borrow that quote from a movie title. Nevertheless, it's an accurate way to describe the reversals that investors have witnessed in 2019. Meanwhile, each time one of these fast & furious moves take place in the market, negative sentiment gets ratcheted up significantly. This isn't short-term negative sentiment either. The increased volatility in the markets is creating an entire army of bearish investors who are concretely resolved to remain in the bearish camp indefinitely. This type of short-term, news driven volatility, equaling long-term bearishness dynamic is an extremely bullish underpinning for the markets. It creates the necessary wall of...
Risk On Investments Are Set To Come Alive, Act Accordingly
When we last left off in the perpetual saga of the U.S. equity markets, a clear statement of the fact that investors had become overly fearful led us to conclude that "this remains a market to take advantage of rather than run from." This was the final sentence of a note titled Buying Equities Here Involves A Simple Yes or No Answer To A Simple Question. The direct and blatant truth of the matter is that investors are being led down an overly-pessimistic path of the global recessionary boogie man that every investor, analyst and trader is now clinging onto in an act of despair. It's almost as if the constant barrage of misinformation has caused investors to tap out from pure mental exhaustion of the repetitive recession sirens blaring for the entirety of 2019. If one didn't know any better, judging purely from the headlines of 2019 exclusively, you would think that the S&P is negative on the year. Instead, we are up about 15% in the face of an overwhelming penchant for negative sentiment towards equities throughout this year. Following this risk reset in the markets, investors are being given yet another opportunity that a majority will miss to accumulate equities at advantageous prices. The risk on trade is set to come alive in a big way as we enter Q4, fed by a near historic misallocation away from equities into any instrument that absolves asset managers of taking responsibility for putting on risk. In other words, professional investors are way too afraid of losing money and they have become stupid in their decisions as a result. The markets punish stupidity without fail. They especially punish stupidity when it plays into a narrative of misallocation that can then allow the markets to do what they do best: create a counter-intuitive, momentum driven march forward that mentally runs counter to even the most outlandish scenario a majority of investors were expecting. As a result, investors want risk on, correlated assets here. There is a time to run from equities that correlate to the markets and then there is a time to embrace them. This is a time when investors should be giving them a bear hug with everything they have. The biggest and brightest mega-cap tech names...buy them. The leading real estate and construction related names....buy them. Semiconductors: NVDA, AMD, AMAT...have to own them. What investors don't want to own is anything remotely associated with risk off. With this said, ETF Pro subscribers were told to liquidate their GDX position that has been held since Q2 and SLV for gains of 40% and 14%, respectively. In fact, we...
Buying Equities Here Involves A Simple Yes or No Answer To A Simple Question
We are now beyond the point of fears related to China and the ongoing trade war. This is news that has been more than factored into both U.S. and international markets. Where we are now in the grand cycle of financial boogie men hiding under every bed and occupying every closet is the after effects of this trade war. Specifically, investors have now moved onto the recession boogie man. Being that markets are always looking forward, the current extreme volatility is a symptom of investors debating whether a recession is going to begin within the next 6-12 months. Simultaneously, economists are ratcheting down their estimates for the economy as they KNOW a recession is coming. What this creates is a potential springboard effect for the markets to the upside, while the bar is being lowered for the economy to the point where even slight glimpses of growth will create a sustainable uptrend. All the meanwhile, investors continue to be so poorly positioned for equity appreciation that a move up from here will force money from the sidelines in what could be a historic fashion into year end. Is the economy going to be bad enough over the next several months to justify the greatest fears of investors while disappointing estimates for growth that have already seen substantial reductions? That's really the only question investors should be asking here to decide whether they are buyers or sellers. Given the recent history of markets getting the economy wrong, led by the bond market especially, this is simply a micro replay of December 2018. Investors greatest fears are rarely realized, especially when they are as vivid and scary as they are at the present time. This remains a market to take advantage of rather than run from. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which...
Here Is Where We Are After The August Risk Reset
Since late July, one of the primary topics of discussion here has been an impending risk reset in the markets. Risk resets are generally nasty affairs that scramble the brain while taking a rubber mallet to the heart. We're seeing this play out in real-time presently, as market participants are failing to distinguish signal from noise, while having their will to proceed in any semblance of a profitable manner compromised severely. Certainly a risk reset has taken place here. Conditions of froth in both price and sentiment have been removed rather swiftly from the market. All the meanwhile, the news out of China has suddenly taken on an amplified tone, as everything from currency fluctuations to protests in Hong Kong are enough to set the Dow back 400 points. Investors have become hyper-sensitive to China. Hyper-sensitivity to a particular topic in the market is typically a sign of news flow reaching the manic stage, where it is close to factored in, unless a much more severe escalation takes place. With respect to China and the U.S., there are very few avenues for real escalation. We already know that trade talks are dead. We already know that both sides are further apart then ever. The economic damage caused by these recent events will start at the emerging market level. Whether that weakness ultimately infiltrates the U.S. economy is debatable. In the meantime investors have the following pieces of the puzzle falling into place: Gold and silver - will say it again, as we have been since December of last year, investors have to allocate a portion of their portfolios into metals here. They are an insurance policy against excessive QE, negative interest rates, out of control central banks and earth shattering shifts in the monetary system taking place over the next several years. Real estate - already have made the case for single family residential REITs some months ago. Home builders have been one of the strongest sectors in the market. We own DHI. Have traded in and out of NAIL a bit here and there. Low interest rates and record jobs create buoyancy in the sector. Financials - our thesis of financials leading the market during the second half of 2019 is being compromised by the debacle taking place in interest rates. The pressure to the bottom line by perpetually lower rates may create a dead money situation here. Still early to tell. However, for the time being, we aren't taking on new financial exposure unless it's for a trade. Mortgage originations - Q3 could be a record for mortgage originations. Quicken Loans - the largest originator - reported...
A Market That Is Coming Full Circle
This week has been an interesting one in numerous respects: First, investors now have become experts in the pegging of the Chinese Yuan. This the latest fascination of the market that is causing gyrating hip movement to take place in the overnight sessions, making for volatile trading conditions. Secondly, we have movements taking place in the interest rate markets that are out of some economic fairy tale that nobody would believe if it wasn't happening before our bloodshot eyes. Yields continue to be obliterated, with all types of theories being bantered about as to not only why this is occurring but the fundamental changes this will create in the global economy moving forward. Lastly, gold continues to cement itself on the path of abundant potential as the President's latest obsession is a weaker dollar, followed by publicly castrating Fed Chair Powell with a pair of rusty scissors and a blowtorch. Compromising the U.S. Dollar and the Fed simultaneously is a wondrous development for gold, as it firmly places a dunce cap on fiat, putting it in a corner without much maneuverability. Amidst all of these entertaining developments we have a market that is doing its job rearranging the minds of investors so that they won't be able to accurately track its movements. On Monday, during a complete panic driven meltdown, we outlined exactly why we were taking up short-term long exposure for the first time in weeks in an a note titled Taking Long Exposure Up. The final paragraph of that piece said: In all likelihood, when looking back at this moment in time at the close of trading Friday of this week, investors will wish they were buying instead of selling. And that's all we are playing this for. A short-term surge in exposure acknowledging that markets enjoy toying with investors more than they enjoy accurately reflecting the value of the companies listed. The next question very obviously becomes, at what point is there potential for the toying to stop? Bringing us back to the 2945 level that was described last week as everything for the market before the worst day of the year took place on Monday. The textural nature of that level doesn't simply dissolve away. Like the sound waves of a giant bell ringing, important price points carry with them a rippling effect that stays. The 2945 level has now become a resistance point for the market. And the reaction to that resistance level will tell us a lot about the markets intentions moving forward. More to come..... Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. ...
Stumbling Through No Man’s Land
Throughout Monday's trading, the path of least resistance in terms of optimal decision making dictated purchasing some stock. Tuesday was much the same, as the market decided to reverse a bit while investors remained generally pessimistic about the outlook for the remainder of this week. Wednesday is a different animal, however. There are certain days in the market matrix where the markets are so deep into No Man's Land that you simply have to freeze. If anything, you use day's like today to derisk the portfolio a bit. And that's how we're approaching today. We sold off the Zillow we purchased Monday morning for a small profit, after adding other equity exposure in the Real Estate 2.0 disruption world yesterday. The original plan was to hold Zillow through earnings. However, when you have no cushion in your portfolio for big swings due to performance issues, it's time to hit for singles, then doubles, triples and eventually home runs again. Just like anything else you have to work your way back into the mix. Way too many guys step up to the plate swinging for the fences, especially during difficult market periods. That's exactly what the market wants you to do. It wants to suck you into stupid decisions in an effort to feel good again. Unfortunately, or perhaps fortunately (depending on how you look at it), good trading/investing is boring. Once again, this dump in yields creates a nice risk/reward equation for equities into the end of the week. Paired with some really pessimistic sentiment, it's a short-term "add to your equity exposure" type of opportunity. That has been our argument from Monday on. Thinking more than a week out is a fruitless endeavor given the rapidly changing macro environment. That's where we are for now. Embrace your inner-boredom. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations...
More Stock Please….
The long exposure train began boarding passengers yesterday, with a continuation of the journey taking place this morning. The fear instilled within the hearts of investors has created a short-term buying opportunity, along with some clear deals on the aggressive beta side of the market. There is an outside chance of the NDX wanting to kiss support at 7250 before a solid bottom is reached. However, the positive factors outweigh the negative to the point that risking 2-3 percent of index downside isn't a terrible trade-off. What are those positive factors? Investors now BELIEVE that the macro situation is irreversibly tainted Investors have, yet again, piled into government bonds with negative real yields in the latest sign of panic Bond investors are forcing the Feds hand to accelerate rate cuts Earnings yield on the S&P drips ever sweeter juice the lower yields go with equities following along on the downside Sentiment towards equity has experienced an epic reversal from highly bullish to highly bearish in a single week The outcome of such sudden shifts can be isolated fairly effectively, creating a positive expected value proposition for future short-term speculation. As opposed to recent weeks, we now have both sentiment support and pending price support of the markets supporting the decision to take on long exposure. For this week, at least, that's good enough. We're taking advantage. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing. Information throughout this site, whether stock quotes, charts, articles, or any other...
Taking Long Exposure Up
The past several weeks have been an exercise in taking scissors to the portfolio, trimming excess fat from around the meat of our exposure. In mid-July, our long exposure stood at 185%. As of the close Friday, we were at a little over 100% long, with a big shift into conservative beta from what was aggressive beta in mid-July. Conservative beta names like REITs, gold and financials have become the theme here recently. That's changing over the very short-term due to the sense of panic that is taking place in the markets today. Following Friday's close below 2940, which was described on Twitter as being a "Tyson level uppercut to the market," paired with China's revised strategy of manipulating their currency in order to keep up in the trade war, investors are suddenly coming to the realization that things are going to get really bad from here. These types of snap consensus realizations that are reflected by near crash like conditions in the financial markets aren't typically allowed to persist without the prerequisite manipulative dance. Especially in a political environment where mouth pieces emerge randomly to talk up the markets in moments of severe distress, with compensatory policy decisions once they realize the financial markets are getting a bit out of hand. The move down in yields again reeks of distress. The move down in the most speculative sectors of the market (think: SOX) screams of investors fully embracing trade war induced economic panic. The move into gold and silver as safe haven plays is rushed in nature, again having a "snap decision" feel to it. All the meanwhile, this type of crash in yields creates a value cushion that should be able to mitigate the threat of precipitous declines, such as what we experienced in Q4 of 2018. In all likelihood, when looking back at this moment in time at the close of trading Friday of this week, investors will wish they were buying instead of selling. And that's all we are playing this for. A short-term surge in exposure acknowledging that markets enjoy toying with investors more than they enjoy accurately reflecting the value of the companies listed. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be...
Week In Review: A Manic Depressive Market In Search Of A Therapist Couch
In what was a fit of rage by the markets in the face of an FOMC that didn't whisper sweet enough nothings into the ears of investors, followed by a Tweet happy President announcing major economic policy decisions on a whim, the markets experienced their worst week of 2019. For readers of this online diary, the market weakness shouldn't have been a surprise as the past two weeks have been a persistent exercise of telling investors of this outcome. Here are the titles of the notes posted over the past two weeks: July 20th - The Market Just Posted A Sign On Its Front Porch Saying Beware Of Dog July 21st - Week In Review: Textural Changes Of A Subtle Nature Bearing Serious Consequences July 23rd - How Much More Ammo Can The Market Waste? July 24th - SOX Faces A Reinforced Brick Wall Of Resistance At 1640 July 25th - A Negative Confluence Of Events July 29th - Is It Time To Go Full Rambo On The Markets? July 30th - Earnings Exhaustion One of the primary theories presented here in recent weeks was the negative nature of the SOX moving up while the rest of the market simply sat on its hands watching. This created a precarious situation. When the SOX goes parabolic while the market lags, the violence of the reversal on the downside when absorbing the gains will cause the remainder of technology fits as a lagging market is indicative of underlying weakness to begin with. The SOX was down close to 7% for the week. With a confluence of negative fundamental events from uncertainty about rates to trade war fears, the SOX retracing a parabolic run predictably added to the fury on the downside. There was, however, one small glimpse of hope during the latter half of trading Friday. The S&P made a valiant effort to save 2940 - a level that was discussed extensively here last week - in the last hours of Friday's trading. In fact, it got rejected right at that level in the last couple hours of trading, closing at 2932 for the week. This type of glimpse, we can call it, into the intentions of the market shouldn't be overlooked. It was very easy for the market to completely lose it on Friday with the negativity from both a fundamental and technical perspective. Yet the markets found a way to close well above the lows. This sets the week ahead to be nonconformist in every way possible. This simply means that investors should expect every type of head game that the markets can conjure up to be thrown at...