In last month’s review, we were concerned that the 10-year was 4.99% and I said:
“That’s the 10-Year Note Rate – DESPITE what the Fed does and, no, it is not being rejected at 5% – it is consolidating for a move higher!”
We also pointed out that the PRICE of the Stock Market far exceeds the VALUE of the US Economy and that indicated we are very likely near a top – so we elected to play things cautiously into October Earnings – and here we are!
Last month, the S&P 500 was at 7,619 and yesterday we closed at 7,807 – up 188 points is another 2.5% for the month, which is another $2Tn pumped into the balloon – call it $80Tn.
Yet, as we noted yesterday in our Live Member Chat Room (and in the podcast and video above), it’s an EXTREMELY narrow rally, supported by AI and AI-adjacent stocks while the rest of the market is already in a correction, with 54% of the Russell 3,000 down 20% or more from their June highs – THAT is the story of Q3 – with less than 50% of the S&P 500 above their 200-day moving average.
I could just cut and paste what I said last month, when we added more hedges and decided to wait for earnings. The 2.5% move up isn’t that impressive since we were down 1.6% from August on Sept 12th (our review date) so now we’re simply back to the highs yet the situation has not changed – these are still UNSUSATIANABLE valuations – there is simply NOT ENOUGH MONEY IN THE WORLD to support a conversion of this stocks to another form of capital (like cash) – that is the physical, mathematical definition of unsustainable!
You CANNOT exit this market if you HAVE to – so you’d better learn to WANT to or you’ll be stuck when it does correct. Those of you who remember 2008 are well aware of that – there were so many sellers and so few buyers that the brokers couldn’t fill the sell orders and many brokerages crashed from the volume.
That was almost 20 years ago now and many people trading since then have never experience a crash – other than Covid and that was a 25% crash (4,800 to 3,600) – after which the Government (Biden) saved the market by pouring TRILLIONS of Dollars into the markets, into companies and even directly to the taxpayers.
That was only a PART of the $11Tn the Government ended up spending to prop up the economy from 2020 to 2022 and our GDP was “only” $20Tn in debt when Trump took over in 2017 – after 241 years and, here we are, on our 250th anniversary – now over $40Tn in debt. Can you call it prosperity when we’re borrowing over $2Tn per year to maintain it?
- According to comprehensive watchdog trackers like the Committee for a Responsible Federal Budget (CRFB), the absolute cap of permitted and administrative legislative spending reached roughly $5.9 to $6.2 trillion, with about $5.3 trillion fully committed or disbursed. [1, 2]
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- Quantitative Easing (QE) Expansion: The Fed launched an open-ended asset-buying program, acquiring massive amounts of Treasury securities and mortgage-backed securities (MBS). The Federal Reserve’s Balance Sheet ballooned from $4.3 trillion in early March 2020 to a peak of $8.9 trillion by March 2022. This added roughly $4.6 trillion in raw net liquidity to the financial system. [1, 2, 3, 4]
- Emergency Lending Facilities: Under Section 13(3) of the Federal Reserve Act, the Fed rolled out nine separate temporary emergency lending programs. These programs were engineered to purchase municipal bonds, stabilize corporate debt markets, and underwrite the small business PPP loan supply. In total, the Fed announced capabilities to inject up to $5.5 trillion in financial support. [1, 2, 3, 4]
| Response Type | Backing Mechanism | Estimated Financial Magnitude |
|---|---|---|
| Fiscal Stimulus | Legislative Spending & Tax Credits | $5.3 Trillion to $6.2 Trillion |
| Monetary Liquidity | Fed Balance Sheet & QE Expansion | $4.6 Trillion to $5.5 Trillion |
| Grand Combined Response | Congress + The Federal Reserve | $10.5 Trillion to $11.7 Trillion |
Likewise, the Fed Funds Rate has also been artificially depressed – pretty much since 2009 at near-zero interest rates – and that has given companies FREE MONEY to play with for over 15 years!
This too is NOT normal and NOT realistic yet an entire generation of traders has known no other way since they graduated college so it SEEMS normal and it’s not just traders – it’s CEOs and COOs who have been trained to borrow money like there is no tomorrow and, at this rate – there may not be!
So, I’m just saying what I’ve been saying all summer and now it’s October and the market STILL hasn’t fallen and we’ve moved our Long-Term Portfolio (LTP) to over 70% CASH!!! – because I BELIEVE in Math and I BELIVER in Physics and maybe the laws have been repealed and we can keep going like this forever – but I’m not willing to risk the IRRATIONAL gains we’ve been racking up the past 4 years on that bet – so excuse me for my caution…
$700/Month Portfolio Review: We JUST reviewed this portfolio last week (7th) and nothing has changed since. We began adding $700 per month to this portfolio 50 months ago – using no margin to trade stocks and option spreads and $35,000 later, our balance is $173,964 – up 390% and well on track to our $1M goal.
This portfolio is 40% in cash but we have a huge SQQQ hedge that will pay us $50,475 if the Nasdaq drops 20%, which should be more than adequate protection for our $102,653 worth of positions (which includes $24,525 for the hedge!).
Since we are not using margin, we don’t have highly-leveraged downside risk – so I’m very confident we can ride out an ordinary correction but we’re not going to be cutting a lot of slack to any positions that are showing weakness as they report on Q3 (or guide to Q4).
Money Talk Portfolio Review: The challenge of the $700/Month Portfolio is not using margin and the challenge of the Money Talk Portfolio is we only trade it on the Bloomberg Show – usually once per quarter and I was JUST on the show on the 30th, discussing the changes we made on the 29th (taping day).
Since we can’t trade in-between show dates (if there is a major emergency, I would push for a segment in between my usual spots but we treat it like we can’t), we try to keep the MTP with “bulletproof” positions – that we are highly confident will survive the quarter. We also have a large SQQQ hedge here – now with the potential to pay net $238,250 on a 20% Nasdaq drop against our $252,858 worth of positions (less $61,750 that is the SQQQ) so, like the $700/Month Portfolio – very well-hedged…
As you can see, the portfolio is sitting on 63.3% CASH!!! AND we have that massive hedge so again – it’s not like we’re throwing caution to the wind – we just want to have some upside in case we’re wrong and the rally keeps going…
As with the $700/Month Portfolio – it’s all about earnings and we’ll see what we really want to keep into 2027 based on the Q3 reports.
IN PROGRESS
