Numbers Never Lie...

Estimated read time: 3 minutes and 22 seconds

In this week’s newsletter:

1. Market recap

2. Top holdings: what I am buying & selling

Market Recap

YTD returns:

• S&P 500: -14.57%

• Nasdaq: -26.74%

• Russell 2000: -15.7%

• Top holding position US Dollar ($UUP): +10.14%

This week was pretty eventful from a data standpoint, so let's take a deep dive into what happened:

Wednesday: Fed Chairman Jerome Powell Speech

The main focus of this press conference was to tee up the December CPI report (which will tell us if inflation slowed or accelerated in November; the answer to that question affects the Fed's decision with respect to interest rates).

Yeah no shit, Sherlock...

Powell went on to confirm that the expectation was to slow the rate of interest rate hikes. So instead of a 75 bps rate hike in December it's expected to "only" be 50 bps in hikes. Yippee?

The market absolutely loved this; the S&P 500 went on to rip 3%+ in the final hour and a half of trading post his speech on Wednesday.

But...what changed? Powell didn't pivot from his initiative to continue with rate hikes. All he did was "slow" them down. He admitted inflation was too high - what if, God forbid, inflation does a head fake an stops going down? What if the rate of change MoM is positive?!

Sounds like Jerome's teammates have other opinions...

All eyes will be on the December CPI number, and rate hike announcement, December 14th.

Thursday: ISM Manufacturing

The ISM Manufacturing Index will show us 'manufacturing activity' in a given month. It's a good leading indicator for our economy health because if manufacturing is on a decline, it's a result of fewer new orders (demand). A reading above 50.0 would be an expansion environment, whereas a reading below signals contraction.

The most glaringly obvious point we all see is that, at the current moment, we are contracting. But what I notice is the RoC from the peak of early 2021 - think of it like the steepness of a hill.

From the peak of 2021 through year end, yes it dropped on an overall basis, but RoC was small on a relative basis. In fact, it increased towards the end of the year.

Then the 2022 cliff came - look how steep the drop off was in almost every consecutive reading this year. It's about as close to a straight line down as it gets. THAT my friends tells you everything you need to know about the health of our economy.

Slowing demand = fewer orders = less manufacturing = less output = lower GDP

(Peep that new order reading below the COVID lows...)

Friday: Jobs Report

*yawn*

While it wasn't the most exciting jobs report, the moral of the story is that the labor market remains in a place that gives the Fed the green light to continue with their plans to raise rates.

Had this report been in the shitter, talks of "dovish pivots" would be on the front page of every news outlet. We're not there.

In The Account | my top holdings

1. $UUP - US DOLLAR

   1. Yes, this position has not been performing well as of late. So we should just get rid of it and buy Tesla, right?

   2. Think again bubs - this remains a core asset allocation during an economic slowdown (if you're not convinced we're in one, print out the first section and glue it to your fridge).

2. $GLD - GOLD

   1. This was felt nice to get back in the portfolio and the timing couldn't have come better. Gold loves falling long-term rates; the 10yr curve has contracted from a high of ~4.3% to 3.5% since late October.

   2. Recall that these are my "top holdings", i.e. things with a higher % of my capital. There are plenty of other positions I have, just a lot smaller. That's what the next section is for.

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

1. HEALTHCARE - $XLV, $PINK

2. STAPLES - $XLP, $PBJ

3. LOW BETA - $SPLV

4. HIGH DIVIDEND - $HDV

5. METALS - $SLV, $PPLT, $XME, $GDX

6. BONDS

   1. Oh yeah, you read that right. Currently zero exposure to bonds in my portfolio; but, with longer term yields falling (Gold and Bonds both like that) and the MOVE index starting to suppress, you have my attention...

Off The Grid | removed positions / short selling opportunities

1. TECH - $XLK, $QQQ, $GOOGL, $META

2. RETAIL - $XRT

3. HIGH BETA - $SPHB

4. CRYPTO - $BITO, $MSTR

5. HIGH YIELD - $HYG

Removed Industrials, Basic Materials, and Financials to put more emphasis on the short positions in Tech.

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.