Two Steps Forward, Three Steps Back

At least that’s what it looks like on Monday, 11/19 at 11:30 Central Time. We had a nice rally last Thursday and Friday. Things were looking better going into the weekend. This morning, however, we are down 1.75% on the S&P-500, giving back all the gains from that rally, and then some. Ouch. For 2018, the S&P-500 is up less than 1% at this writing.

You may have noticed that I don’t try to explain the daily or weekly stock market behavior. That’s because, in the short term, markets move pretty randomly. The explanations you see on the news are usually pretty bogus. On any given day, I can give you three reasons why the market is falling . . . or three reasons why it is rising. That doesn’t mean I really know exactly what caused the movement on any given day. Very few people do, and they are probably not talking.

By now, though, enough things have happened that you should see the value in our methodology raising cash over the last two months. Predicting the future is a pretty sure way to lose your shirt. BUT, reducing portfolio risk when market risk increases does pay off in the long run. . . and that is our goal.

We are well positioned. No need for any action at this time.

Cheers,

Ugly Start to Friday

Wow! After yesterday’s bounce, many people were beginning to feel better after Wednesday’s huge down day. But at this writing, 9:51 AM Central, the S&P-500 is down about 2.4% from yesterday’s close. This is well below where we closed the day on Wednesday.

Once again, the miners, the metals (gold and silver) and bonds are up, mitigating the losses from stocks. Also, thankfully, we went into this situation with 43% cash for our clients with balanced portfolios.

The speculative clients have much higher allocations to gold, silver and the miners, so those accounts are doing well today… creeping closer and closer to turning positive. This is starting to look like a Bona fide crash to me.

Please be careful out there. US stocks are now solidly negative for 2018.

Dale

Stocks are Falling Tuesday Morning

Well, I wrote last week that I expected US stocks to test the lows from October 11, 2018 last Friday. My timing was off. This morning, Tuesday, 10/23/18, the S&P-500 is down 1.5% just after the open. International stocks are worse. This “breaks” below the lows from 10/11 and if the “test” is passed, stocks will pop above those lows today and, perhaps, bounce up for a week or so. On the other hand, if this “test” level fails to hold, sentiment could get ugly and lead to a stock market crash. It will be interesting to see.

Lo and behold, gold, US treasuries and the miners are rallying strongly. People who got frustrated with their diversified portfolios and envied those who were “all in” on stocks should be feeling a lot better this month. We are barely above water for 2018 in US stocks right now.

Exciting times are ahead for the next few months, I believe.

Cheers.

Will we Test Last Week’s Lows Tomorrow?

Last week, stocks had the really big down day we all heard about. This last Tuesday, we saw the S&P-500 stocks have a nice 1.6% rally. However, today, it looks like those gains are going away … at this writing (2 PM Central), the S&P-500 is down 1.3% or so.

I expect that we will retest last week’s lows tomorrow, unless there is a big rally in the last hour of trading today. Either way, we are content to hold 43% cash in our conservative asset allocations.

Take care to manage your risk.

Thanks.

Stocks Hit an Air Pocket on Wednesday!

Well, I wasn’t surprised that stocks were down yesterday after breaking below January 2018’s highs, BUT I was surprised at how big the drop was. I think the S&P-500 was down more than 4%, if my memory serves.

Increased volatility means greater risk to most investors, except those like Warren Buffet who bought so advantageously that they don’t really care. For our methodology, however, this will likely mean that we reduce our allocation to the S&P-500 early next week. Our methodology does not purport to predict the future; it allocates among asset classes based on recent market behavior.

Fortunately, we went into yesterday with 35% of our model in cash. Our  gold, miners, and US TIP’s were either up or flat on the day, so we were not badly hurt.

I’ll be very interested to see if stocks hold here while people sort things out, or continue the crash behavior that occurred yesterday.

Cheers.

Ugly Day to Start September 2018

Every asset class in our model allocation is down today. Not a good sign. It makes me grateful we are holding 35% in cash for our conservative portfolio allocation (on the home page of portfoliowisdom.com).

Increasing volatility is one danger sign for asset classes that have been rising for months or years. Another danger sign is the increase of correlation between different asset classes… when all asset classes move up or down together.

One term, “melt up” is used when all asset classes are rising together. This happens when “everyone” is fleeing cash and trying to add risk assets to their portfolio. This can happen after a market crash, when the smart money starts to buy in… OR, more often, this can happen as the last blow-off at the end of a long bull market when the very last buyers can’t fight their greed and jump in. When this happens, it can be good to raise some cash … take some profits off the table.

Another term, “crash”, is used when all asset classes are falling together. Today is like that. If this continues for the week, it could mean trouble. Thankfully, we raised 35% cash for our managed portfolio clients a month or so ago.

Time will tell, although September is historically bad for US stocks.

Cheers.

The Fed Blinks. Stocks at New Highs. Gold Rebounds

President Trump has been loudly complaining that he (and our economy) are “not getting any help” from the Fed because of the repeated rate hikes over the last year or so.

Today, in a speech, the Fed Chairman sounded very dovish and accommodating to the market mavens in his first big policy speech. Stocks have pushed through the previous all-time highs and are up nicely today. Gold and the miners are having a huge day. The US dollar is down.

For now, the bull market in US stocks continues. Gold and the miners may have bottomed for the year, based on the signals by the Fed.

Time will tell.

Have a great weekend.

Allocation Change at Portfolio Wisdom

As of Monday, 5/21/18, the medium-term trend turned down for Small Cap US  Stocks.

Now, the only asset class in our portfolio in an uptrend is gold (GLD or SGOL). All bond classes and all stock classes are trending down.

Accordingly, I reduced stock holdings, increased gold holdings, and increased cash to 15% of our portfolios. (For my diversified clients, we continue to hold a 5% position in the gold miner ETF, GDX). For my speculative clients, we are primarily in precious metals, buying on dips and selling on rallies around the core positions.

Any Question? Call me at 615-414-1942.

Cheers.

Merry Crypto Christmas

It has been a great year for stocks. The other asset classes have been mixed, with US Treasuries hanging in there far better than many people predicted for 2017.

Probably the biggest news in financial areas has been the explosion of the valuation of BitCoin and the introduction of so many digital currencies. My sense is that this interest in Bitcoin is a manifestation of a global mistrust of fiat currencies and the governments that devalue them.

Gold has lost it’s place in the public mind as a hedge against financial disaster and devaluation of “paper money”. Now, “everyone” wants bit coin. Fortunes will be won, and lost, by people speculating in this new currency, although the upward trajectory might last for months or years to come.

I doubt bitcoin will be the long-term answer, although the blockchain technology underlying the currency is an idea that is here to stay, in my view. I don’t recommend more than a tiny speculative holding in bitcoin, and that only if you are a sophisticated, nimble, knowledgeable trader.

Our conservative portfolios have met expectations this year. As always, when people compare a diversified portfolio to the S&P 500 during a bull market, there is a temptation to feel left out of the big gains. However, nobody minds being in a diversified portfolio when the inevitable bear market in stocks comes along.

Nobody knows when that will happen. However, we can manage risk and adjust portfolios based on how the market behavior changes.

God bless you and yours during this festive and sacred season.

Dale