Considerations
The technical damage taking place in the current market environment is so extensive and pronounced that rallies are going to be selling opportunities for some time to come. With that said, it becomes incumbent on market participants to develop a means of gaining alpha in the midst of chaos. As usual, the answer to the question of achieving alpha is a simple one. Of course, execution of the strategy is another story that has far too many variables to go into here. This environment will, very simply, reward those who manage to: Avoid exposure entirely Pick select names having fundamental attributes that prove so overwhelmingly positive that the market recognizes their value Add short exposure The old 2016-2018 methodology of picking momentum, growth and/or whatever is popular among investors at the moment without regard for quality, analysis or rationale is dead in the water. This effectively means that trend following, which had knowingly or far too often unknowingly, become the default strategy of most every fund manager out there is also finished for the foreseeable future. The remainder of Q4 and the first half of 2019, at the very least, will look nothing like what investors have become accustomed to. The methods to achieve returns will have to be modified. I've opened up the scans to short selling opportunities on future rallies in select financial, real estate and related names where I feel a tangible edge exists to merge technical and fundamental data points moving forward. New long opportunities are shot for the time being. _______________________________________________________________________________ From time to time, I email individual company research, commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com 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...
Key Levels, Seasonals and A Transformed Market
Technology names, in particular, are starting to get into some rather scary areas from a technical perspective. The 6,600 level on the NDX is one of the most important the markets have recently faced. That's the hook and anchor for the markets until further notice. There are schools of thought that cite statistical data showing seasonal strength into the final weeks of the year following mid-terms during a year when the markets were up until a couple weeks ago. The question is....Does the market completely ignoring what were some pretty compelling statistics about market performance into the end of this year make this a buying opportunity because the markets will eventually fall in line or is it a sign that the markets are broken? If the technical damage wasn't so well defined we could very easily say it's the former. However, given the persistence of the decline along with the accompanying technical damage, it can be said with a good deal of confidence that the markets spitting in the face of compelling statistical data saying we should be soaring here adds to potpourri of negative data with respect to the condition of equities. Markets that are broken only care about one thing: Going lower until psychology dictates that prices can stabilize. Those who think this is a simple aberration, with the markets quickly returning to their former self are sure to be disappointed. As I wrote earlier this year, everything has changed in 2018. The markets going forward, while continuing the general bullish trend in 2019, will look nothing like the past several years. _______________________________________________________________________________ From time to time, I email individual company research, commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com 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...
What Have You Avoided Lately?
This has become a market where avoidance is the best strategy. That's the essence of the current market environment, in fact. The more selective you are, the more chance you have of actually outperforming. The more you attempt to pick, probe and think, in any form whatsoever, the more chance you have of creating or compounding a loss. Sloppy markets make avoidance an actual strategy. Wall Street will never tell you this because investors doing absolutely nothing creates no revenue and no liquidity for the markets. If you're not creating revenue or liquidity by trading, then you are useless. I have attempted a couple of new long investments in the past few months and had to cut both loose a short time later because the weakness in equities is so blatantly profound and well defined that you have to play defense. Even with positions you are absolutely convinced with. If they aren't acting right, you have to let them go. Over the past few weeks I have looked at all types of opportunities on the long side. Companies that I liked 30 or 40 percent higher have suddenly become downright cheap. In each and every circumstance, I have been thankful that my discipline in holding off until general market conditions improve has saved me valuable performance in a year that I can't afford any mistakes. There is no reason to believe that this situation will change anytime soon. Simply because it's the end of the year doesn't mean the market HAS to rally. It doesn't. It can keep going down into year end, completely ignorant of how convinced everyone is that markets have to rally because its Christmas. Until the market begins presenting definitive evidence that the positive attributes of avoidance have been replaced by the positive attributes of engagement, then it may be best to stick with what has been working. Avoidance is a strategy. It just isn't talked about because it doesn't do anyone any good to present it to you as such. _______________________________________________________________________________ From time to time, I email individual company research, commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com 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...
The Wash and Rinse Cycle, Starring Energy and Rates
This is a weekly chart of the S&P 500 since the beginning of this year: In essence, 2018 has been a wash for both the bullish and bearish camps, as the S&P 500 has simply been toying with investor emotions year to date. All the meanwhile, this is what's happening in the world of interest rates: And here is a look at crude oil since the beginning of 2018: To date, since the beginning of the post-crisis secular bull market, we have been in an environment with flat/down interest rates and energy prices. 2018 marks the first year during this secular bull that the interest rate/energy picture has been modified in such a way that it transforms the economic picture as we know it. It is not unreasonable then to assume that while the secular bull market will remain intact, it will more than likely take on a different form moving forward. The underpinnings of what created this bull market (cheap money and cheap energy) have reversed. Equities then will either reverse course, turning into a bear market OR the bull market will be modified to a point that former leaders turn to laggards and new leaders emerge based on the shifting landscape. Since I am of the view that we are in what will turn out to be an eye-popping bull run that is currently in its middle stages, the prospects of a prolonged, brutal bear market doesn't necessarily register. What does strike a chord is an adjustment period, such as the one we are facing currently, that could end up donning a bear market mask in an effort to recalibrate allocation so that the next prolonged period of sustained gains can take place. In the meantime, the weakness that has taken place during the first couple weeks of October all but guarantees a sloppy outcome for equities for the remainder of the month that could drag well into November. The weakness will end up being a buying opportunity for equities, however, at some point in the not too distant future. As good a time as any to detach from tick watching, digest the earnings picture and return to the screen in November. _______________________________________________________________________________ From time to time, I email individual company research, commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com 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...
Emotional Support Animals Available Here
The current generation of investors has two significant issues to contend with: They have never experienced a substantial pullback of any type, let alone a bear market. They depend on emotional support animals to make it through everyday life. Both of the above factors play into the hands of the market in a myriad of violently barbarous ways that are yet to be determined. What is concerning in the near term is that the sages that have the hearts and minds of investors are treating this pullback as if it is a routine event that should be treated as an opportunity. All the meanwhile the equity markets are putting on a demonstration of sheer violence that hasn't been witnessed for quite sometime. The overwhelmingly bullish opinion of the sages and the characteristics the equity markets are demonstrating are in stark conflict with one another. In every single case I have witnessed this type of conflict it is the equity markets that end up winning. They do not relent in violence to the downside until the so called voices of wisdom either go silent or turn bearish. Chief market analysts comforting investors by telling them that "panic is not a strategy" simply doesn't happen at market bottoms of any substance. Investors are therefore in a precarious position for the remainder of October. A vast majority of investors feel that earnings will be their savior while being comforted by a general underpinning of complacency that doesn't seem to be shifting regardless of how hard the market is pressing the downside. The resolution to this type of conundrum for the markets is twofold: Create volatility that is so abhorrently vile as to completely strip investors of their mental fortitude to continue AND/OR create such continued downside so that investors tap out completely. In the first scenario, the losses are much more contained, however, it takes much longer. In the latter scenario, it can be over before the end of this month. In either case, October is shot for the bulls. Allocate accordingly. _______________________________________________________________________________ From time to time, I email individual company research, commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com 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...
The Levers Pulling The Markets Have Changed
It's important to realize that the levers moving the markets have shifted in 2018. It's a concept I have been discussing since early in the year. Not paying attention to the shift is going to trap many investors in a vicious cycle of disappointment. Up to this point, since early 2017, the markets have been moving on a positive expectation for earnings improvements brought about by a rising economic tide, supported by ultra-aggressive fiscal policy and the residual effects of historic monetary stimulus. As long as earnings supported price, stocks would rally. To date, everything has been peachy and straightforward. That peachy economic environment is not going to change. Earnings will continue to come in at or better than expectations against a backdrop of a booming economy. However, the influence of earnings has now shifted from being an overwhelming positive force to a much more divisive factor. In other words, while the economy will remain peachy, the straightforward nature of things has come to an end. Interest rates are changing everything across the entire risk asset spectrum. The markets are beginning to realize that a generational shift in interest rates is occurring that is going to suddenly make risk free assets compete for investor dollars. At the same time, the corporate debt binge that has fueled our current growth is now substantially more expensive for the corporations that depend on that fuel to prosper. The equilibrium that has created prosperity in the asset markets has shifted. Investors are no longer concerned with the purity of earnings growth, instead turning their attention to the fact that perhaps stronger earnings growth equates to higher interest rates, which ultimately equates to greater uncertainty. Equity markets find themselves in a complicated spot that they haven't been in at anytime during the current secular bull market that has been set on a foundation of easy money and relatively straightforward analysis. The upcoming earnings season is going to be an exercise in this new reality. Investors who believe that simple positive earnings reports from a group of the most popular investor names will propel the markets to new highs are going to be continually disappointed. A set of new levers is in the process of being created that will cause new correlations to take place among an entirely new set of assets that will then allow the bull market to progress. Adjust accordingly, as the next two years will look nothing like the last...
Q3 Earnings Are A False Flag For Investors
At present the markets are doing an extraordinary job outlining exactly what matters moving forward. Any level of analysis whether fundamental, technical, contrarian, qualitative, quantitative or otherwise, serves only to confuse an extraordinarily simple message. Interest rates are now at a point where they are disruptive in nature, creating a headwind that the markets are not sure how to deal with. The very simple equation moving forward is that when interest rates decline, equities will have the green light to rally. When interest rates rise, equities will be sold. Of course, the markets being creatures of consensus subversion, the moment investors catch onto any correlated behavior, filing it away in the common knowledge library, markets will alter their course in a new direction. In other words, interest rates rising will not cause the markets to fall forever. In fact, the next long-term phase of this secular bull market will come with dramatically higher rates, followed by dramatically higher equity prices. A subject of another piece, when time permits. For the time being, however, the markets have spoken. Q3 earnings may cause individual names to outperform on a case by case basis. Those looking for a uniform lift in the markets from earnings, however, will be disappointed as the fiddler is playing a new tune for investors to dance to. As for interest rates, the recent acceleration to the upside on the ten year is a clear signal of a secular shift. There are some key technical levels ahead on the 30 year that will further confirm the shift. The 3.5 - 3.7 percent level on the thirty year are key levels. Game. Set. Match. _______________________________________________________________________________ From time to time, I email individual company research, commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com 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...
The Bottomline: What Higher Interest Rates Mean For Investors
What has become clear following the destruction of government treasuries this past week, besides the fact that we are entering a new era of exponentially higher interest rates that pretty much nobody in the current generation of investors has experience dealing with, is that the equity markets have very little room for error moving forward. When you have competing government backed assets that are getting close to handing you 4% without a shred of risk barring global thermonuclear war, then equities have to be on their best behavior. The biggest problem for companies on a more micro level is that there is debt that will have to be refinanced in the years ahead, with an abundance of debt coming due after 2020. What if the yield on the 10 year at that point is above 5%? What will refinancing debt with literally double the level of debt service do to corporate profits? Will growth in profits over the next 18 months be able to mitigate the increased debt servicing costs? This type of maturity wall into a markedly higher interest rate environment very simply sets up a profit abyss for many companies moving forward. It is becoming more important, as portfolios are balanced and rebalanced in the months ahead, to be cognizant of companies that will be subject adverse conditions of suddenly taking on increased debt service costs at figures that have been completely outside of their ability to forecast. To simplify this to the maximum degree possible, anything that derives income from yield will do well. Anything that derives income from borrowing will struggle. Adjust accordingly. _______________________________________________________________________________ From time to time, I email individual company research, commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com 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...
Antagonism In Portfolio Positions: A Clinical Study
Antagonistic behavior in all situations is an action that seeks a disproportionately greater reaction in order to escalate a situation to a resolution. At it's essence, antagonistic behavior is a response to emotional pain. Hurt people seek to hurt people. Antagonistic behavior as it relates to portfolio management is an often overlooked component of structuring and a modifying a portfolio of investments over the long-term. Of course, antagonism as it relates to a financial instrument comes in the form of a loss of capital that at the same time causes an erosion in the underlying thesis for remaining invested. The thesis often times remains identical as the point of initial investment. However, the erosion of the thesis is a symptom of persistent antagonism seeking a greater reaction from the investor. That greater reaction comes in the form of varying emotional stages that eventually completely alter the framework of an investment due to the pain of persistent antagonism emotionally exhausting the investor while seeking to escalate the situation to a resolution. Of course, labels of investment behavior will often times dictate how one reacts to antagonism. If you are, for example, a trend follower, antagonistic behavior won't be labeled as such until a technical breach takes place that invalidates the trend. If you are, for example, a value investor, antagonistic behavior is initially thought of as an opportunity to increase a position. Antagonism, for a value investor, only enters the picture when a pain threshold has been breached that alters his or her perception. As long as the antagonistic behavior can be defined within a system of labeling the antagonism as falling within a statistical framework for acceptable results then the behavior can be ignored. Once the system of labeling no longer applies due to the extent of the losses, antagonistic portfolio behavior is very suddenly thrust onto the consciousness of an investor causing a greater reaction, typically escalating into a prompt exit regardless of the underlying fundamentals or deviation from the initial thesis. The only thing that has changed is that the antagonism no longer is confined within a definable framework. It can be argued then that labeling oneself is detrimental as it only inhibits the ability to judge antagonism. In other words, labels of growth, value, trend follower etc. are only a means of accepting antagonism as being a necessary component within the framework of the investment. Antagonistic behavior within a portfolio should then be judged as what it is from the outset. Whenever a portfolio position is moving against an investor, it must be seen as an action that seeks to create a disproportionately greater reaction from...
When Contrarian Theory Fails
Every single day in the markets somebody attempts to make a contrarian statement in one form or another in order to exercise their right to intellectual superiority. Of course, in the markets, more than perhaps anywhere else, there is a definite reward for contrarian prowess. After all, the markets don't simply hand out money with no effort. Current market conditions aside, which would have had your average 12 year olds favorite online resources outperforming most any fund manager, contrarianism is the foundation of every story you have ever heard about investors harpooning the legendary whale in what turns out to be the trade of a lifetime. What happens when contrarianism fails, however? In other words, what happens when what is obvious is obviously right and it ends up rewarding all parties involved? I have argued in the past that the dynamic involved in rewarding all market participants in a heavily imbalanced consensus opinion is essentially the equivalent of the markets internal functioning mechanism breaking. Once broken, it allows for trends that are both powerful and unreasonable to a significant degree. Perhaps the one trade in the current market that is obvious in nearly everyone's eye is going long interest rates/short long dated government bonds. Everyone knows that inflation exists. Everyone knows that fiscal stimulus has massive inflationary ramifications. Everyone sees that yields are breaking out. The contrarian crowd among us has been loud in proclaiming that they know how this story ends, expecting some type of expungement of short exposure before the trend resumes. But it's not happening. The bond market can barely muster the energy for a moderate consolidation before the trend resumes back down. All the meanwhile, all of Wall Street is short bonds/long rates in one way or another. The internal mechanism of the markets that is built on fooling the greatest number of individuals is in the process of being overwhelmed by the fundamental data. The internal market mechanism that is underlying efficient market pricing dynamics is crumbling. What are the ramifications? A meteoric rise in rates that neglects to take into account any semblance of contrarian feelings, intellectual gesticulation or consensus data. A move to 4% on the 10 year is within reach. And what is obvious becomes obviously right. _______________________________________________________________________________ From time to time, I email individual company research, commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com 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....