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- Who's Still Alive? Bueller?
Estimated read time: 4 minutes and 23 seconds
In this week’s newsletter:
Market recap
Skills & data used this week
Top holdings: what I am buying & selling
Market Recap
YTD returns:
S&P 500: -19.44%
Nasdaq: -33.1%
Russell 2000: -21.7%
Top holding position US Dollar ($UUP): +8.47%
Look closely at these YTD returns and ask yourself these questions:
A year ago, did we expect growth to accelerate or slow in 2022 vs. 2021?
A year ago, did we expect inflation to accelerate or slow in 2022 vs. 2021?
If you did not know the answer to these questions last year don't fault yourself (this publication started in July 2022, so blame us!).
Selfishly, we knew the answer to these questions. While the magnitude of RoC (rate of change) was unclear, directionally we knew that both growth and inflation were expected to fall in 2022 vs. 2021.
Those two, simultaneously happening, is the worst macroeconomic setup for equities (stonks!).
The unknown part to 2022 was how the Fed was going to react with respect to interest rates. They proceeded to raise (not surprising) at the fastest rate in market history.
Re-posting this from last week to emphasize the point that Fed policy can have a drastic impact on markets:
I could write an entire post pointing out the catastrophic crashes in certain equities during this past year vs. their bubble-like performance in 2020-2021, but that would be rude.
LOL, just kidding. That's exactly what I'm going to do!
The "You Done Fuc*'ed up" Stock Pick Awards of 2022:
Tesla - 2020: +743%, 2021: +49%, 2022: -65%
GameStop - 2020: +209%, 2021: +687%, 2022: -50%
Bitcoin - 2020: +301%, 2021: +90%, 2022: -65%
Apple - 2020: +80%, 2021: +33%, 2022: -27%
The first three examples were what everyone was probably thinking of; those equities were all anyone was talking about post-Covid. So congrats if you bought in at the beginning of that, but are you (still) holding the bag? Even Apple, the "holy child" in financial markets, got body-bagged this year. Because even Apple couldn't avoid negative RoC (think year-over-year) growth. How about the others? Bueller?
The Covid effect made it damn near impossible for any company to continue accelerating their RoC in terms of growth on a year-over-year basis, let alone monthly.
Eventually, all bubbles pop. And whether you like to admit it or not, 2020-2021 was a bubble. And 2022 popped.
Skills & Data Used This Week
Money.
It allows the consumer to purchase life essentials, is essential to the world economy, and keeps strip clubs in business.
Take it easy, Tom. I'll get to that in a second. But first, let's discuss what "money metrics" are used in the economy space today.
M1 = all money that encompasses cash and checking deposits
M2 = all money that encompasses cash, checking deposits, and other liquid forms (savings deposits, money market securities, and any other forms of money that is liquid).
It's clear that M2 is a broader measure of money supply; investors will typically look at RoC in money supply to get a better understanding of economic health.
If M2 is growing, the economy is healthy (or potentially overheating due to inflation) to the Fed is more inclined to step in and take corrective action.
If M2 is slowing, the economy is contracting and the Fed is more inclined to ease policy in order to stimulate growth.
We all know what the fed A) did and B) will continue to do (hint: raise rates). So what is the status of our M2 money supply?
Oh, lovely. For the fist time EVER (I guess looking at this rolling 8-month view) the money supply turned NEGATIVE on a RoC basis.
This shouldn't come as a surprise as I noted a few weeks ago that consumer credit is rising alongside a falling savings rate. M2 RoC is capturing that beautifully.
The large spike in M2, a precursor to rising inflation, was recently met by the Fed's decision to raise (albeit a little late) interest rates. Ok, I guess that's what they were "supposed" to do. But if M2 is slowing (it clearly is)...isn't the Fed suppose to ease up policy to stimulate the economy.
Jerome Powell = The Grinch
In The Account | my top holdings
$UUP - US Dollar
Losing strength, and I'm not afraid to admit that. But, it still remains a core assets, just not as big. Currently I am at a 5% position out of a max 12% position for a currency. Even though I've sold a lot, it still remains the highest $$$ holding in my account
$GLD & $GDX - Gold & Gold Miners
It's interesting to watch bond yields rip again, which is typically bearish for Gold, yet this position is holding steady (Bonds on the other hand are not). Gold volatility ($GVZ) has increased recently but still investable at ~16, which is historically on the lower side. I invest in assets that have bearish trending volatility. And Gold is exactly that.
$XLP (Staples), $PINK (Healthcare), $XLU (Utilities)
Continue to buy on red days, sell on green. Rinse. Repeat.
On The Radar | positions I want to build / sizing up
NOTHING
Bonds were here, and now they're not. What happened? Clearly bonds yields did a little head fake and are still trending bullish. The MOVE index is slightly elevated, but certainly off its highs which is a positive sign. If Bond yields can trend lower (and more important, stay lower) it's back to Bonds I go.
Side note: check out CD (Certificate of Deposit) options with your broker. I got a 3 month, 4.3% CD at the click of the button. Easy money in tough times!
Off The Grid | removed positions / short selling opportunities
TECH - $XLK, $QQQ, $GOOGL, $META, $TSLA
RETAIL - $XRT
HIGH BETA - $SPHB
CRYPTO - $BITO, $MSTR
HIGH YIELD - $HYG
ENERGY - $XLE, $XOP
If you got sucked into the Elon Musk story telling, shame on you ($TSLA -32% in 1 month)
Until next year....
-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.