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Friday, March 29, 2024

Terrific Tuesday – Yellen Makes Everything Awesome Again

Everything is awesome!  

Janet Yellen told us yesterday not to overreact to the Friday's AWFUL Jobs Report while she herself overreacted and took the June rate hike off the table, blaming the Brexit vote – as if she only just yesterday found out about it.  That sent our markets flying higher and, this morning, Asia followed us higher and Europe followed Asia and the US higher and now our markets are following Europe higher and the tiger will continue to chase it's own tail for a while and we'll see where we end up but then what?

Then tomorrow we get the oil inventories at 10:30 and $50 oil is one of the big drivers of this week's rally as the Energy Sector and the Financials who lent them money are much relieved.  If you actually read Yellen's speech – it's kind of all over the place and she says "Unfortunately" 3 times and essentially says the Fed does not have a clue as to what's going on or what to do about it.  Isn't that AWESOME???

She says weak 10 times:  GDP growth, economic activity, business investment (3 times), productivity (3 time), US growth and International growth.  The only "strongs" she mentions are goals for the future so yes, we are weak (10x) and we HOPE to be strong (4x) and the market reaction is to get back to all-time highs – as if we're already strong and getting stronger – AWESOME!!! 

As I mentioned in yesterday's post, we're not trying to fight the Fed(s) here – as long as they are going to keep pumping up the markets, we will go along for the ride – but we will keep one hand on the exit door at all times because this crazy train may come to a screeching halt at any time but, for now, we seem to coast right past crisis after crises as they all pile up in our rear-view mirrors – still there but forgotten by our short-sighted investors.  

In fact, our Long-Term Portfolio, which is generally bullish, topped +100% for the first time on yesterday's rally and our Options Opportunity Portfolio (available as a stand-alone product at Seeking Alpha), hit +60%, up 15.4% since our May 9th review and we only had to make 3 trade adjustments in the last 30 days to get there!  These are SILLY amounts of money to make in a month so we take about 1/3 of our ill-gotten gains and we put them into hedges to cover the positions we haven't cashed out yet – it's a very simple system, actually.  

As you can see from our Portfolio Allocation Table, the LTP is currently heavy in Materials and Energy, which is why we are quick to short Oil Futures as a hedge when it turns down.  At the moment, oil is over the $50 line (/CL) but we expect a dip back to $45 between now and contract expiration (22nd) before another rally kicks in into the July 4th weekend, after which we will most likely be taking most of those bullish bets off the table as we prepare for another pullback in the Fall (and another China melt-down before that!).  

NONE of our new trade ideas (see yesterday's post) were in those sectors, as we lay the groundwork for our next rotation.  Meanwhile, while we wait, we continue to short the Index Futures when we get a good signal and we didn't get one yesterday but today we have 2,110 on the S&P (/ES), 17,950 on the Dow (/YM), 4,530 on the Nasdaq (/NQ), 1,175 on the Russell (/TF) and 16,850 on the Nikkei (/NKD) and we can short the laggards if 3 of 5 cross under AND the Dollar is over 94 – those are our marks for the day and VERY tight stops above. 

This is no different than our stance yesterday – only from a slightly higher starting point as we KNOW why the market didn't fall yesterday (Yellen) – but what will save it this morning?  Certainly not Productivity, which is down another 0.6% after falling 1% last month while Unit Labor Costs have jumped 4.5%, placing continued margin pressure on our Corporate Masters.  Bring on the robots! 

How can this be a market trading at the all-time highs?  It's RIDICULOUS!!!  That's "ridiculous" as in "deserving or inviting derision or mockery; absurd" – you CANNOT take this market seriously and you SHOULD NOT put serious money into it at this very, very uncertain point.  

Gallup had their Economic Confidence Poll this morning and that's at -14 (not very confident) and down from -7 last May and way down from +3 in January.  While Current Conditions are chugging along at -5, Economic Outlook has dropped to -22, which is worse than it was last summer when the S&P had crashed back to 1,850 from 2,134 or in February, when the S&P crashed back to 1,850 from 2,116 but now the S&P is at 2,111 – so what could possibly go wrong?

Gallup's U.S. Economic Confidence Index Components -- Monthly Averages

Look, I don't want to be Mr. Doom and Gloom – as I have pointed out, we have TONS of long positions because the Fed(s) have TONS of money to prop up the markets with.  I just think it's a good idea to protect them from a potential revisit to 1,850 (-12.5%) because, truth be told, we've made more money in our Short-Term Portfolio (400%) on our downside hedges than we have on our Long-Term positions (100%) so hedging is great fun when it pays off and merely an annoyance when it doesn't – kind of like making small bets on long-shots at the track except, in this case – we also have our money on the favorites!  

Be careful out there. 

 

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