Stocks Fall As Higher Rates And Inflation Make Traders Golf In The Cold

That was some ugly stock market action today. I hope that you were not in a position where it was too painful or that you’ll lose sleep over your stock portfolio tonight. If you do, you might need to trim a little bit of your largest positions on the next rally. I’ll remind you. Otherwise, I think markets like today can provide some good buying opportunities and a chance to [finally!] cover some of our short hedges/sell some of our put hedges with some nice gains. I didn’t do much trading in the personal account again today though I did do some covering of shorts and a little nibbling of some Facebook (FB), Unity (U) and other names today. After hours while it is down 20% or more on the day, I even bought a little SPCE back that we’d sold back in the $50s as noted in a Trade Alert or two.

Sometimes, it’s like Trading With Cody subscribers get the news before its news, haha. Sorta’ haha. I mean, look at what I wrote two weeks ago and look at the headlines today. Two weeks ago, I sent out a Trade Alert about higher inflation and interest rates coming for the US markets:

” I also think that inflation could be coming back to the economy for several years here. Higher interest rates (perhaps look at shorting and/or buying puts on the TLT again?) and commodity inflation looks likely to kick in this year and for years to come (perhaps the DBA ETF might be interesting here?). In fact, consider this a Trade Alert that I’m doing a little of both — I’m buying a few TLT puts dated out to March and just a little bit out-of-the-money and I’m buying a little bit of DBA itself.

But I do think that the vast majority of the thousands of stocks that you can buy and sell and that more than 90% of the hundreds of cryptocurrencies that you can buy and sell are going to be available at much lower prices at some point in the next year or two.”

And here are the headlines from today’s WSJ: “Stocks’ momentum has faltered the past week as investors have faced a sharp and swift rise in bond yields. The yield on the benchmark 10-year Treasury note marked its biggest one-day advance since November and settled at its highest level in a year.”

Along with: “Markets are signaling that inflation is coming and investors are getting ready. Treasury yields are rising and stock-market investors are starting to shift from high-growth tech companies.”

I don’t think higher inflation and the higher interest rates that it is starting to force into the markets is a short-term trend. Too many trillions of cat dollars are out of the bag from too much stimulus and borrowing from the governments around the world will likely help continue to drive near-term inflation trends higher.  And higher inflation/higher interest rates over the long-term are likely to start to be driven higher because of the problem that China’s urban middle class revolution has likely peaked and is not going to help drive deflation in the global system any longer.

So I’ll continue to ride some TLT puts along with my DBA longs and I’ll continue to look for other ways to get in front of likely higher inflation/higher interest rates trends.

I leave you with a golf analogy. If you know it’s a tough hole on a tough golf course, sometimes its best to just play four shots to a par 5 green so you can safely try to putt in for a par or save a bogey at worst. In the 45 degree weather with elk droppings on the green, I was happy to get away with a safe two-putt bogey on this par 5 that requires you to hit over a 100 foot ravine to get the green if you don’t play it safe. You have to recognize the circumstances in which you’re playing such that you always maximize the risk/reward of the hole/trade/investment.

We will do this week’s Live Q&A chat at 9am ET tomorrow (Friday), in the TWC Chat Room or just email us your question to support@tradingwithcody.com.