Look at what’s dominating today’s market headlines:
And best of all, our quote of the day:
The ‘Bernanke Put’ is Back in Play – “The phones have been crazy,” says William Lefkowitz, options strategist at asset management and brokerage firm National Securities. “People are excited after the Bernanke comments.”
The headlines are full of euphoria, excitement and talk of bullish stock moves. Hmm.
Here’s a headline from this time last year:
Back when stocks were 20-30% lower than where they are now, the headlines were full of fear, panic and talk of market crashes.
Meanwhile, here’s what I was saying back then while panic and fear dominated the headlines:
“I’ve said from the beginning when the idiot mainstream media started biting on this fiscal-cliff stuff that we should buy panics over it when it dominates the headlines and sell euphoria when a supposed resolution is dominating the headlines. That’s still the playbook.”
“So let the government continue to spend as much of our and our future generation’s money on blowing up asset bubbles and ensuring record corporate earnings and margins and share of GDP as they possibly can while they play their faked debt and deficit concerns with these repeated updates, speeches, and leaks about the FCDH, the EEDC, social welfare programs, and so on. We’ll just have to continue to follow our playbook of buying the panics and selling the spikes as long as the asset bubble blowing business booms like it is.”
I remembered that I wrote an article last summer that I called, The Catalyst for the Next Market Crash. Do you remember what I said would be a real reason to get concerned about the stock market crashing? Higher interest rates. Hmm.
The biggest worry of most investors and traders and the favorite potential catalyst for most bears is of course the ongoing EU crisis. Is it a solvency or a liquidity crisis? It’s both! The European banks are illiquid and capital is sticky because the banks are insolvent because they lent too much money to Greece and Spain and Italy at historically unheard of low rates and most of that money had for decades been funneled to special interests and fomenting real estate bubbles for people rich enough to own real estate.
My biggest worry has nothing to do with Greece or Spain or the eventual collapse of the Euro as a fully-functioning, inter-state currency. Rather, as I’ve many times explained — the markets are all DOWN since the EU and Euro came into existence in the late 1990s. The bull market and the US economy had boomed for 25 years before the EU/Euro came to be.
But the thing that will likely crash the stock markets next is when the US Treasury interest rates start to return to something more normal and reflective of the true cost of capital, which has never been and never will be less than 1% for an extended period of time. There is risk to lending people and nations money and that risk must be compensated at a reasonable rate….and eventually lenders to the US government will expect reasonable compensation.
All right then, let’s tie all this together and make some conclusions and some corresponding moves in the portfolio. If the playbook is to buy the crashes and the panics and to sell the euphoric highs, and if stocks are at euphoric highs, and if the biggest catalyst for a bigger problem and/or even a crash in the stock markets is higher rates, and if rates have been spiking in the last few weeks/months, then what would the right move be right now?
If you answered “Sell/trim some stocks” and if you were steady enough at the lows to have been buying stocks, then give yourself a huge pat on the back. But don’t break your arm patting yourself on the back. (Side note. I’ve had about 30 broken bones in my life including several arms [you know what I mean] but I’ve never broken my arm patting myself on the back and I’ve never actually heard of that happening. Maybe you could pull your shoulder out of socket by patting yourself on the back, but breaking your arm? Na. So maybe the saying should rightly be, “Don’t pull your shoulder out of socket patting yourself on the back.” But I digress.)
And the point of all this is of course to prompt you and I to take action and actually follow through on the trimming and selling again while we’re at these euphoric new highs and while rates are in an up trend. Don’t panic, don’t sell it all. Just take profits and keep raising cash while the stocks are up and then you’ll be ready and flexible for the next move, whether the markets are higher or lower from here this time next year.
I’m going to trim down some of my longs again today. I’m going to take a little more of our largest position, courtesy of the long-dated call options I bought when the stock was much, much lower this time last year, Sandisk. Selling the rest of my Sandisk calls and replacing them with a little more common stock in addition to the common I already hold in Sandisk from my steady purchases during past crashes/panics. I sold some Google, Ciena and Amazon on Friday last week and I’m going to trim a little more (about half as much as I trimmed on Friday) of each today. I’m going to trim down some FutureFuel, selling about 1/5 of my position in it. I’m selling all of the loser technical BK XIDEQ trade entirely, which was my smallest position anyway, but still a loser. Mea culpa on that one.
Flip It is a template for success. Keep Flippin’ It. Make your escape while the escaping’s good.