Our last Watch List was published on Feb 27th.
We opened at S&P 5,981 that morning and it was the beginning of our long-predicted 20% pullback for the indexes. That led to spectacular gains in our Short-Term Portfolio (STP) hedges (we had $3.5M worth of them), which we cashed out at the bottom of our range (the 5,000 line) and then we went long and, by May 15th, the S&P was back to 5,924 and we took the money and RAN! - Cashing out our portfolios into the uncertainty of trade and tax policy.
One of the great keys to trading success is learning to realize when you got lucky. Sure there is skill involved in that we developed our 5% Rule™ and the chart we'd been using all of last year perfectly captured the predicted range of the index but we're still LUCKY that we nailed not only the tops and bottoms of the ranges but also the TIMING of the turns - to maximize our gains as we played them.
When you get lucky and have a huge win, you have to learn to take your winnings off the table - ESPECIALLY when you are not at least 90% certain it's going to happen again and Trump's policies are erratic, to say the least!
Last Tuesday (May 27th) I outlined the Top 10 Economic Threats for our Members and Boaty's summary was:
Overall Assessment: Storm Clouds Gathering
The markets are behaving as if we’re in a “soft landing” scenario, but the probability matrix suggests otherwise. With 7 out of 10 threats having a 60%+ likelihood of occurring, and several already manifesting, the second half of 2025 looks increasingly treacherous.
Key Vulnerabilities:
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- Multiple simultaneous shocks: Unlike previous crises with single catalysts, we face interconnected threats that could cascade
- Policy constraints: The Fed has limited ammunition with rates already elevated and fiscal policy adding to inflationary pressures
- Valuation extremes: Stocks are priced for perfection with little margin for error
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Most Likely Scenario: A rolling correction beginning with housing and consumer spending, spreading to corporate earnings, and potentially culminating in a broader recession by Q4 2025 or Q1 2026.
