"It's like you're always stuck in second gear
When it hasn't been your day, your week, your month
Or even your year" – Friends
Actually it was last July when the S&P 500 first tested the 4,500 line.
I was, at the time, a little skeptical, writing Morning Reports with titles like this:
July 1st – Throwback Thursday – Delta Variant Sends Many Countries back to Lockdowns
I know we don't want to start July off worrying about Covid when we should be going out and having fun but we need to remember not everyone is having such a good time and that kind of makes me wonder how all these projection of S&P 500 earnings, which rely 50% on the Global Economy, are going to be hitting their marks when the rest of the World is still facing serious issues?
July 6th – 2,300 Tuesday – Is the Russell out of Gas?
With 2020 earnings being negative, the CAPE (earnings over 10 years) of the Russell 2000 is still well below the 2018 high of 130, hovering around 120 but we're paying 43% more than we did then, when the P/E ratio for the Russell was 83.05. The means the current P/E for the Russell is around 100 times earnings and we KNOW, for a FACT, that the Government and the Fed have spent over $10Tn (50% of our GDP) in the past 18 months – just to give us that 43%. We don't know, for a fact, that they will ever stop spending and average of $600Bn/month to prop up the economy and, if so, then maybe paying 100x earnings isn't so crazy but, if they do ever stop….
July 14th – Which Way Wednesday – Biden Proposes $3.5Tn in New Stimulus
Is that going to be enough? It's been 3 months since our last $2.1Tn stimulus so isn't it time for another round? Look how great the economy is doing – it can't be because 40% of last Quarter's $5Tn GDP was stimulus, could it? Yesterday, the CORE CPI came in at 0.9%, 50% higher than the 0.6% expected by leading economorons. Remember when the CPI used to be high and they said "Don't worry, the Core CPI is still under 0.2%" – well that's completely out the window….
July 15th – PhilStockWorld July Portfolio Review – Part 2
$2,142,405!
As long as we continue to do this in an up market – even if we end up burning the entire $183,290 balance in our STP, we'll still be about $300,000 ahead for the year – that's without doing anything smart along the way! BALANCE, Danielson, BALANCE is the key to everything. If you have balance, like a good surfer, you can make little adjustments and ride almost any wave. If not – Wipeout!
Aug 17th – Top of the Market Tuesday – Cashing Out While We Can
The LTP is already over 50% in CASH!!! so cutting 1/2 of our positions should bring us to about 75% CASH!!! and then the CASH!!! is our hedge – as we've got tons of money to go bargain-hunting if there is a sell-off and, if there's not – well clearly we know a lot of ways to win.
Aug 19th – Thursday Failure – Supply Chain Issues Force Toyota to Cut 40% of Production
CASH!!! is one of our best hedges against a market downturn and we've been reluctant participants in the rally recenty but the combination of resurging Delta infections, continuing (and worsening) supply chain disruptions and a possible end to the constant supply of FREE MONEY that has been propping up the markets is simply a bit too much to stay bullish around – so back to CASH!!! we go.
Aug 27th – 4,400 Friday – Can Powell Add 100 Points?
You can see why we took advantage to cash out at the top – it's hard to find buyers when you are selling more than a few shares and the S&P dropped 5% in two days last week – it doesn't take much to send these dominioes tumbling over. That's why Powell has a tricky job today (10 am). He has to mke his keynote speach for the Jackson Hole Conference which is being held on-line because Covid has made it too dangerous to hold a conference – even for a few hundred rich people in a luxury mountain hotel.
It's hard to say the virus is behind us as an economic factor when your audience just had to cancell a trip to Wyoming because the disease you are pretending is gone just spiked up again – past last year's levels (when the conference was also cancelled).
Meanwhile, the Fed minions are floating trial balloons about scaling back their monthly stimulus (tapering) from the current $120Bn a month because it has been jacking consumer prices up 10% – and that has been hammering down consumer confidence at a rapid level.
Anyway, you get the idea. Same BS for a year, much less stimulus than we were promised and now the Fed has gone into reverse – so what do you think is going to happen? We cashed out half our LTP in August and the market bottomed in early October and we had plenty of cash and we bought back until the Holidays when again, I got nervous and again we pulled back and again we started buying at 4,200 – now we hit 4,500 and we bumped up our hedges but we haven't cashed out our longs… yet.
As the wise many said last July, BALANCE is the key to good trading. The market has gone nowhere for a year but our Paired LTP/STP is now $2.9M – making pretty much exactly the $300,000 (15%) we projected each 6 months since. That's what we can make in a balanced portfolio and I'd rather make a consistent 30% per year than an erratic 50%.
While we may seem to have good timing as the market shimmys within its channel, we're just value investors and we buy things when they are undervalued and we sell things when they are undervalued – it just looks like market-timing in hindsight. What's most important is that our "Be the House – NOT the Gambler" system for selling premium means we can make money in flat or even slightly down markets – so we don't need huge rallies to make good, consistent profits.
Overall I'm generally concernered and leaning more towards another CASH!!! call than anything else but we're waiting to see how earnings play out this month before making any major adjustments. We went over our hedges in our Short-Term Portfolio (STP) in Wednesday Morning's PSW Report and we feel adequately protected against a 20% drop in the market – which will hopefully be the worst case.
Have a great weekend,
– Phil
