I’m back from NYC, but tomorrow I’m headed out to Vail, CO for a small conference where hedge fund managers like me will trade their best ideas, both long and short. When I told the host that I’d like to do a presentation on Tesla, he was like, “Are you sure? Because most everybody there will be short TSLA.” I’m going to make my presentation after dinner on Thursday night out in the resort’s parking lot so that I can do it around my Tesla Model 3. The Tesla/I will be taking my beautiful wife, my oldest daughter Lyncoln and my niece Ellery on the 10 hour road trip with me from Ruidoso NM tomorrow morning after the chat (chat room, 9am ET tomorrow morning or just email your question to email@example.com). I’ll likely post an update or a Trade Alert or two from Vail before I get back this coming weekend.
In the meantime, let’s hit on the markets and the economy and The Great Trade War of the 21st Century.
First off, now that the markets have rallied more than 5% from their recent lows when the fears were at their highest just five trading days ago, I want to note that I’m doing some trimming. Last Monday, I’d nibbled on some FB, AMZN, GOOG and other names as noted in the Trade Alert I’d sent out. One week and big rallies later, I’m trimming a little maybe 5-10% of those names and most other names in the portfolio now this week, just giving myself a little bit more flexibility again.
Likewise, it’s amazing how quickly the algorithms seem to be exacerbating all the moves up and down. Markets are not supposed to make 5-10% swings in timeframes of 5-10 trading days, as they’ve been doing just about the last couple months. And they don’t usually crash and rally 20-30% like they did in the six months before that. I don’t feel comfortable with these swings and it’s making me want to be a bit more defensive than I had been the last time we were at these levels a few days ago.
I don’t think it’s time to call an end to The Bubble-Blowing Bull Market that we’ve ridden so successfully for the last decade, so I remain quite net long overall. But despite the stock market’s sudden spike over the last week, the same longer-term risks being brought on by the extended/existing tariffs and supply chain disruptions courtesy of The Great Trade War are still very much there. I’m not sure it’s all clear sailing from here.
What really worries me the most is that I’m not sure I fully understand Trump’s or China’s motivations and timelines at this point. The motivation issue, and, as always, the Fog of War issue. As I wrote one year ago this week: “Collateral damage, friendly fire, unintended consequences and other nightmares of war strategists are bound to have their financial parallels in Trade Wars. It won’t be this year, but who knows what will be targeted and affected by The Escalating Global Trade War in coming years.”
As for the Fed saving things…well, as an old colleague of mine wrote in the WSJ today, it’s usually NOT bullish for stocks when the Fed first cuts rates. Indeed, market have tended to crash after the first Fed rate cut during my investment lifetime:
“Fed officials this past week made it clear that they are worried, and their dovish comments fueled a 4.7% rally in the S&P 500 over the past four trading sessions. But cheering the Fed for starting to cut rates can be a dangerous thing for investors.
In January 2001, for example, the Fed announced a surprise cut that sent the Nasdaq up 14% in a single day, which remains the index’s largest move since its creation in 1971. Some of that era’s beaten-up tech darlings made significantly bigger jumps. Sun Microsystems and eBay each jumped 30%, for example, while JDS Uniphase soared 37%. But there still was a recession ahead, and more carnage in store for the market. Following that day, the Nasdaq would fall 57% before hitting bottom in October 2002. Then there was the Fed’s rate cut in September 2007, which gave the Dow Jones Industrial Average its biggest one-day percentage gain since 2003. Fast-forward one year, and the U.S. was in the teeth of the financial crisis.”
Of course, as Justin also points out, the first Fed cut doesn’t always mean that the markets are about to crash:
“The hope is that if the Fed does decide the current situation warrants a rate cut, it would be able to guide the economy to a soft landing like it did when it started cutting rates in 1995. Or maybe it would be like 1998, when the problems the Fed was reacting to—Russia’s debt default and buckling global credit markets—ended up not putting much of a dent on the U.S. economy at all.”
We’ll have to be flexible before calling an end to The Bubble-Blowing Bull Market and getting much more defensive if/when the Fed finally does outright cut rates. Here’s a free-for-Revolution-Investing-subscribers ebook I’ve written about this topic a couple years ago:
I want to hit on sentiment for a minute too. Aside for the permabears that I talked to in NYC, most everybody there was quite bullish. I’m not sure the daytraders are back to highfiving themselves again but the fear that we bought into last week has faded as quickly as the market has rallied. Fade the fader’s fade, as I used to say back when the markets started going wildly up and down like this back in 2007.
We don’t have to be all in or all out of the market. We don’t have to try to catch the very top when it does come. Maybe the economy and the markets will work out fine here. They usually do after all. But I don’t want to be terribly aggressive about betting that they will right now either.
Be cool, I guess is my best advice.