ALL CAPS

Estimated read time: 3 minutes and 7 seconds

In this week’s market recap email

1. Market recap

2. Skills/methods I used this week

3. What's in and what's out of my portfolio

What Happened This Week

YTD returns:

• S&P 500: -24.9%

• Nasdaq: -33.91%

• Russell 2000: -24.83%

• Top holding position US Dollar ($UUP): +18.81%

On Thursday we received the latest CPI report - the beloved measurement of inflation.

Estimates were 8.1% vs a reading of 8.2% (dark blue line)

Core CPI (so basically the cost of goods and services, minus food and energy because those two assets can be volatile) hit the highest level SINCE 1982.

Yes, I went bold caps on you there. And it won't be the last time.

High inflation perpetuates the need to raise interest rates; raising interest rates during a recession is CATASTROPHIC to our economy. 

There is currently a 83% chance of a 75 bps rate hike in November and 100 bps at 17%. So spoiler alert - more rate hikes are coming. While in a recession. 

Are we in a recession? 

Shit...looks like we're in one. Did anyone know this??

Of course not, our fearless leader calls the shots! All is well!!

Joey, bub, not only are we ALREADY IN A RECESSION but the economic outlook is calling for 4 MORE QUARTERS of decelerating GDP - you've got a full blown economic DEPRESSION coming your way...

Glad to see those previous rate hikes are doing something (NOT.)

Teaching Moment

Volatility.

"liability to change rapidly and unpredictably, especially for the worse." - The MF Dictionary

I find it very interesting that the definition of volatility ends in "especially for the worse". To no surprise the higher the volatility, the worse it gets. 

Let's get one thing straight, I had a 15% bond position in my "Top Holdings" for my 8/20 post. The following week I removed them — why?

When volatility is trending upward it's CATASTROPHIC for an asset. 

Let's say I HODL'd bonds instead of selling and taking a loss (a concept most people can't get themselves to do).

The most common Bond proxy is $TLT — it's -12.3% since I removed it from my portfolio.

And since Bond positioning can be a large % of my portfolio (see prior posts about position size limits) I just saved a shit ton of money from going down the drain. 

And that's all because I respected the signal of volatility.

Over the past few weeks in my "On the Radar" section below, you'll notice I've had ZERO buy signals - you might as well burn your money rather than invest it when VIX is trending >30.

Not a bad call either with the S&P -7% over the past month. 

So with VIX and MOVE heading into uncharted territories, how are to 60/40 portfolios doing that your textbooks teach you about?

In 2008 we had bonds to save us, $TLTs return that year was just shy of +34%. But, the MOVE index hovered as low as ~100 at one point. Its current level is 155. 

Respect the DAMN VOL.

Ok, enough with the all caps — point proven. 

In The Account | my top holdings 

1. $UUP - US DOLLAR

   1. We might not see a buying opportunity like we did last week on the dip. If you built up this core position, congrats you get to see some on the bounce because that's what you do. Go buy a beer, you earned it.

2. CASH

   1. To buy the beer with, because these markets require some drinks to tolerate

On The Radar | positions I want to build / sizing up

1. NONE

   1. Read the middle section again on why. And then read it again.

Off The Grid | removed positions / short selling opportunities

1. TECH - $XLK, $QQQ

2. FINANCIALS - $XLF, $KRE

   1. Kicked off earnings season this week and outlook is...wow.

3. BASIC MATERIALS - $XLB

4. INDUSTRIALS - $XLI (new)

5. RETAIL - $XRT

6. HIGH BETA - $SPHB

7. CRYPTO - $BITO, $MSTR

Until next week....

-BW

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.