There are a number of ways to look at investment returns - some examples are absolute returns, relative returns and returns on a time-weighted basis.
The decision to put in my trailing sell stops in the last hour (after a (SPY) move from $282 to $292) is really a function of my respect for the accumulated time-weighted return of last week's buy and today's sale.
This is not patting myself on the shoulders (that I made a sizable trading gain).
Rather, it is being mindful and conscious that, given the plethora of uncertainties, when you make 100 handles in the S&P Index in less than three trading sessions.
And, importantly, it is also a reflection that the margin of safety has been reduced (along with higher risks and lower reward) as measured by my anticipated SPY trading range of 2700-2750 to 2900-2950 compared to cash now at 2925 (S&P Index).
Consistency of purpose (and calculus), respect for time-weighted returns are key determinants in delivering investment returns over time.
No issues in yesterday's Hong Kong protests that was mostly calm helped to lift the Hang Seng by 2.2%. Peaceful protests are likely now very much on purpose because it would make it even less likely that China rolls in which they know would be a disaster for Hong Kong. The rest of Asia was green as well.
With respect to China and the fight we have with them, we await today the decision on Huawei and whether we will punt to another 90 days with respect to giving them a temporary license to buy our stuff. I'd expect we give it.
What I found really interesting and a bigger picture positive was the NBC-Wall Street Journal poll seen yesterday that a record 64% of those surveyed said free trade is a positive for the US vs 57% when asked in 2017. That's a record high in this survey and only 27% said it's not a good thing. I hope that people are seeing the danger of using tariffs as the main stick in our negotiations with China. Peter Navarro by the way on the Sunday talk shows said tariffs "aren't hurting anyone in the United States." Ok. He also said we only have a flat yield curve, not an inverted one even though the 3 month and 10 yr has been inverted since May. Politics and messaging, I know.
With the equity rally and calm in Hong Kong, rates are moving higher globally. I'd argue in the short term that the plunge in yields that has seemingly gone parabolic is due for a breather. To me what the ECB does next month is the most important event for what happens next with bonds since the negative rate situation there has gotten so insane. ECB member Olli Rehn has really raised the bar for what they eventual announce.
Japanese exports in July fell another 1.6% y/o/y but that wasn't as soft as the expected decline of 2.3%. This is the 8th straight month of y/o/y drops. Exports to China, Japan's largest trading partner, fell 9.3% y/o/y. Exports to the US rose 8.4% y/o/y. Imports were down by 1.2%, about half the forecast of down 2.3%. Bottom line, global trade is still declining but the pace at least is not accelerating. The yen is weaker in response to the rally in global stocks.
Eurozone CPI for July was revised down by one tenth to 1% but the core rate was left unchanged at up .9%. Over the past 10 years core CPI has averaged 1.1% so the ECB has essentially gotten the definition of price stability in the dictionary. But, in the central bank urban dictionary that defines it as at or near 2%, they of course have not. It is this misinterpretation of price stability that has killed the bond markets in Europe and Japan.
Last week we heard the story that Germany could initiate a fiscal stimulus spending plan if their economy goes into recession. Today there are some numbers surrounding that story. The German Finance Minister Olaf Scholz is saying they could lay out a 50b euro spending plan. As their economy is about 3.6 Trillion euros, we're talking about 1.3-1.4% of GDP. Scholz though did say that nothing is imminent. The problem with any stimulus is the problems with the Germany economy are mostly external so this stimulus could just be a spitting in the wind waste of money.
To Be Safe - Putting in Trailing Sell Stops on My Index Longs
The S&P Index, which traded last week at close to 2800 is now at 2925 - up 125 handles from the lows of only three trading days ago. We have moved back towards the higher end of my projected trading range (2900-2950 on S&P Index) and while I think we can get an overshoot, I am putting in sell stop losses in my (SPY) and (QQQ) holdings at $291.8 and $188.15, respectively. This will guarantee large gains (especially on a time-adjusted basis) and is meant to be safe in portfolio exposure after the large run.
Wouldn't it be nice if the analysts they troop out in the business media talked about the future rather than continuing to analyze "today's" crises and latest headline each day?
I am not a fortune teller but one can plainly see many landmines in the markets future as our election season is getting closer, China has no reasonable resolution possibilities, and world wide debt continues to strangle growth.
Is everything I have learned just thrown to the wind and none of these worries are going to negatively effect the market?
* In all likelihood this is not a new leg in the Bull Market
Remember, there is a fundamental difference between the S&P in Dec. 2018 and the S&P today. Its all about time frames. While I became more short term bullish, this rally will likely be far more abbreviated than the one that commenced last Christmas. That said, the machines and algos, which took us down in mid-December 2018 are now taking us up now. And, we have learned these moves are nearly always exaggerated. Let volatility work to your advantage.
* In all likelihood this is not a new leg in the Bull Market
Remember, there is a fundamental difference between the S&P in Dec. 2018 and the S&P today.
Its all about time frames.
While I became more short term bullish, this rally will likely be far more abbreviated than the one that commenced last Christmas.
That said, the machines and algos, which took us down in mid-December 2018 are now taking us up now. And, we have learned these moves are nearly always exaggerated.
Throw Away Investment Dogma in the Face of a Dynamic and Changing Market
* (Over short periods of time) the market is a game to be gamed * More volatility lies ahead * I am positioned for a continued market rally with full recognition that though the rally could be sharp its half life is likely finite
Early on Thursday, in "Minding Mr. Market and Buying Some SPY and QQQ," I made an abrupt change in tactical strategy - moving from large sized net long of exposure to small net long exposure as stocks fell materially from the earlier market highs as the machines and algos do what they do (exaggerate short term price movement).
In that missive I provided a balanced view of the good and bad news - and with the S&P Index falling by over 220 handles from the previous top, I moved into action:
* Lower stock prices are the ally to the rational buyer * At long last an attractive buying opportunity seems to be developing * I have taken a trading long rental in SPDR S&P 500 (SPY) at $282.05 and Invesco QQQ Trust (QQQ) at $181 in premarket trading
Spyders are now trading at $282 as against my expectations of trading range over the balance of the year of $270-$275 to $290-$295.
This means that the S&P Index, if my calculus is correct (it's only as good as my input), has the same amount of upside reward to downside risk, thus explaining my current small net long position.
I am not a Cassandra or perma bear; when I see value I am not reluctant to take on its opportunity, as I did last December. I do not factor in price momentum or charts, which tell us where we have been and not where we are going, into my investing. I use a calculator and have a contrarian streak that takes into account current stock prices relative to intrinsic or fair market value.
If higher prices are the enemy of the rational buyer, then lower prices are our ally.
Going forward there is some good news and some bad news, perhaps evenly distributed in terms of market outcome (as suggested above)...
The poor market action of the last few weeks have turned the Bull Market in Complacency that I worried about for months and produced an unsatisfactory reward vs. risk to a more realistic one.
Many strategists and technicians who worship at price momentum were positive into the recent topping and now have turned more pessimistic.
Indeed, in certain quarters (based on the schmeissing of individual stocks), fear has surfaced -- an important reagent for an improving market backdrop.
When you read my list of "Good News" above, my message is that a lot of my concerns are becoming discounted by market participants after months of disregarding the tailwinds.
I start the day in a small long net exposure and I am planning to expand my long positions with a focus on some of the FANG constituents if we move toward the lower end of the expected range for the S&P Index (sub $280 on SPY).
I am actually excited about this prospect, as the last time I went meaningfully long and stocks were under "fair market value" was in late December 2018.
While I don't expect that the markets will move to such an extreme of undervaluation in 2019, we could get close.
In minding Mr. Market, it is almost time to heed the words of my Grandma Koufax (and legendary investor), "Turn that frown upside down."
On the hit to futures I have taken a long rental in SPY and QQQ in premarket trading.
The sharp market decline last Wednesday and Thursday served to place a number of stocks (e.g. FANG and bank stocks) and asset classes (e.g. bonds) at undervalued and overvalued levels, respectively - with very attractive rewards v. risks.
On Friday I got longer and I moved from small to medium sized in net exposure.
This morning (at about 6 am) S&P futures are +26 handles and bond yields are gapping higher (the 10 year yield is +8 basis points to 1.62%).
There are several likely weekend reasons for the overnight rip:
* China introduced a market driven lending rate - which is really a rate cut. * The absence of heightened violence in Hong Kong. * The exploration of a 100 year U.S. bond. * A delay in the Huawei ban, initially reported by Reuters and now confirmed by Wilbur Ross on Fox News. * A lot of investors are "off sides."
Bottom Line
(Over short periods to time), the market is a game to be gamed.
Take advantage and be opportunistic in the new regime of market volatility - induced, in part by the president's behavior and tweets and the machines and algos that wag the market's dog in an increasingly frenetic manner. Importantly, as expressed by Northman Trader, there is a recession in fiscal and monetary thought leadership with the only outcome (for now) being a larger and larger bubble.
I have (and aggressively got long), even though I maintain an intermediate-term negative market view - with a host of fundamental and technical concerns.
As previously cited, there are several reasons for my tactical and temporarily bullish change of heart - some include the widening in the risk premia (as the risk free rate of return dropped precipitously), the build up of fear and the associated drop of complacency and a deeply overbought bond market (which could snap back in yield momentarily).
Though my move in no way is a permanent condition - as the reward vs. risk will turn less attractive into a continued rally - it was based on the notion that a sharp tradable rally could lie ahead at exactly the point in the time when investors and traders were growing more gloomy.
One of the hardest things for investors to do is to trade around a confidently built view and analysis - that is, trading long with an ursine bias.
And that is precisely what I have done in the last few trading days based on my expectation that the averages can move to the upper end of my expected trading range (and even come close to the previous high).
Based on my expectations of a continued short term rally (I share Divine Ms M's views articulated this morning) I am out of gold, short bonds and long stocks.
For now.
Long SPY, QQQ, BAC (large), C (large), WFC (large), AMZN (large), FB (large), GOOGL (large)
Danielle DiMartino Booth sees the possibility of a Hong Kong recession:
As the Hong Kong protests enter their 11th week, Chinese authorities may be disappointed, given nine out of 10 students support a campaign to boycott classes after school resumes September 2:
Hong Kong enjoys the 11th highest per capita worldwide on a purchasing power parity basis,one notch above that of the U.S. and nearly four times that of 79th ranked China; its stock market is the world's fifth largest and Hong Kong is the priciest property market in the world
The protests are beginning to harm the economy -- in 2018, tourism was 11% over the prior year, but has since declined by a third; in addition to the trade war drag, the protestors are encouraging the boycott of unsympathetic retailers further speeding the onset of recession
In the Chinese culture, one was truly the loneliest number. The more of the single digits you lined up in a row, the lonelier the theoretical path. Enter four enterprising, albeit lonely, male students living in Mingcaowuzhu, the all-male dorm at Nanjing University in 1993. Rather than shun November 11, as in four consecutive calendric '1's,' the foursome decided to mark the day with celebrations in honor of being single. The funny thing about celebrations is that they bring people together. The tradition spread from the university to a modern-day, social media driven China, in need of a good excuse to party at an appointed date and time once a year.
Another enterprising group found its own way for the Chinese population to celebrate. The Chinese economy has long been short on consumption as a percentage of its economy. In a genius move, Alibaba (BABA) capitalized on the happy mood of Singles Day, November 11, to launch a shopping day Bezos can only envy. 2018 Singles Day's sales raked in $30 billion, multiples of Amazon's $7 billion 48-hour haul a month ago. It's likely Jack Ma is among those hoping the turmoil in the streets of Hong Kong passes after classes resume September 2nd. Even as shares in the online retailer he co-founded are off 12%, the pro-business icon is said to be weighing a $20 billion secondary listing in Hong Kong.
Li Ka-shing can empathize with the body blow withstood by Ma's net worth. Hong Kong's wealthiest man has borne more than $3 billion in paper losses since the end of July. Even so, Twitter (TWTR) was alive with claims that one of the full-front-page ads that Li, the 91-year old property tycoon, placed in Friday's papers contained a hidden message to "Allow Hong Kong to police itself." Later Friday, Reuters quoted Li as saying that "The young always fear the future has nothing to do with them," while adding that he believed "the government heard the messages from the protesters loud and clear and [were] diligently racking their brains for solutions."
As the protests enter their 11th lonely week, Chinese authorities can only hope students have no intention of staging 11 more weeks of protests which would carry them past Singles Day into the first week of November. Curiously, in other cultures, the number 11 symbolizes rebellion and victory for those who survive and emerge with acquired knowledge. Indeed, in a survey released Friday taken by democracy party Demosisto and two student organizations, nine in 10 students said they supported a campaign to boycott classes "to express their concerns on the social injustice and show their determination for democracy in Hong Kong."
QI stands in unity with the students chanting for a free and independent Hong Kong, but fears they will not prevail. The semi-autonomous territory was retroceded to China in 1997 and its government was never intended to be representative despite Hong Kong being culturally, politically and linguistically distinct from mainland China. More to the point, what would ever compel Chinese authorities to relinquish hold of one of its most prized possessions?
As a stand-alone, Hong Kong's economy of $363 billion places it 35th worldwide.With a population of only 7.45 million, that's saying something. When the effects of currency are normalized via purchasing power parity, Hong Kong's GDP per capita was $64,794 in 2018, coming in 11th (there's that number again) worldwide, one notch above that of the U.S. and nearly four times that of 79th ranked China.
But, what makes Hong Kong really stand out is its financial standing. The stock market is the world's fifth largest while it boasts the priciest property market on the planet. Tourists flock to Hong Kong - some 65 million visited last year, up 11% over the prior year.
Looking at Hong Kong's success from a different angle is the Heritage Foundation which maintains an Index of Economic Freedom. Of Hong Kong retaining its top global ranking in 2019, Heritage cited, "increases in scores for trade freedom, monetary freedom, and government integrity countered by a decline in judicial effectiveness."That last part was prescient given the ongoing protests were initially triggered by a for now-shelved extradition bill that would allow the handover of suspects to other jurisdictions, including mainland China, thus eroding Hong Kong's judicial independence.
It's difficult to quantify the effects of the trade war on Hong Kong given trade is 375% of its economy with, by the way, 0% tariffs. What we do observe in today's graph is that fresh business with an ailing China is at a record low in a series that began in 2005. With the added pressure of the targeted protests, critical tourism is off by a third.
It looks as if commerce will follow. A new online campaign called "Bye Buy Day HK" urges activists to spend less and shun retailers and firms unsympathetic to the cause. Call it the opposite of Singles Day on the mainland with this last effort likely to push the territory into recession this year.
