I'm Done
No, I’m not quitting. I am just done predicting anything anymore. I have come to the realization that, I am as just like everyone else. Clueless as to what the future actually holds.
For example, I had Duke going to the National Championship game against Arizona. Busted. I have predicted at least two recessions and was wrong both times.
So, I can honestly say that I do not know if there is going to be a recession in the coming months. I do know that there are some pretty good indications but I am not going to flat out say, we are heading into a recession.
Oil prices are elevated with little chance right now of them coming back to Earth. By Earth, I mean $72-$78 dollars a barrel.
US economy was slowing prior to the hostilities in Iran. While some companies will do well during this incursion, most won’t. Higher fuel prices will limit budgets and limited budgets spend less. How far and how deep that goes, no one really knows.
Yes, markets usually do a pretty good job of predicting recessions and if this market isn’t telegraphing the possibility right now, I don’t know what else you need to see. A five week slump in equities is a very strong sign of something is wrong.
The housing market, which I insist is the best barometer for recession, is slumping and rising mortgage rates are not going to help. I do know that the housing sector only makes up around 15% of the overall economy and a pullback of one or two percent is not all that impactful overall, but it has to do more with economic psyche. If buyers are holding off because their comfort level is not high, sellers get anxious and unlike oil, this is not a perfect example of supply and demand because it is a longer term purchase. A bigger purchase. Housing supply and demand being out of whack means money is not being spent. Builders are not hiring. Suppliers are not supplying. It can bog down an economy when things get out of whack, which is where we are going.
Consumer sentiment is falling and that is the kicker here. We are a consumer based economy and if people stop buying big ticket items and look for discounts on smaller items, we see growth stall. Which, within the next few months you may see that.
Hmm, looks like I am making a strong case for a recession huh?
I am not saying we will or won’t be in one. I am just giving you some food for thought.
On to a different subject and a curious one it is.
The markets have sold off from all time highs over the last few weeks. NASDAQ is in or was in correction territory. The S&P hit correction territory last week as well. Today things are reversing a little bit but does that mean the bloodletting is over?
Hardly. With potential escalation in Iran. Possible recession looming. Equally important, an administration that has a master plan but doesn’t actually know what it is.
This last point brings up something from my past that I will share.
While I was a broker on the floor of the NYSE, I built a reputation for trading that I know my customers loved but other brokers, not so much. I heard one broker call me a “Master of misdirection”. I took that as a compliment. Other brokers just felt very frustrated.
The fact was I never actually executed an order with any set pattern. I used to say I would “Bob and Weave” and rarely executed an order the same way twice. One thing that I did learn is that brokers on the floor pretty much all traded the same way. Little creativity and that could be because their customers didn’t allow it or their clerks did not feel they were capable enough. I don’t know, but when I would enter a trading crown I could almost always tell how things were going just by seeing the brokers that were in that crowd. It was like playin poker, every broker had a certain tell and they never changed that tell. So, if you were competing with them on the same side, you knew what to do. If they were on the opposite side, you also knew what to do. The misdirection part was a little different. If I was in a crowd with brokers that I knew were good traders I acted a certain way and executed my order in the best way possible. If I was in a crowd with poor traders or robots, I would trade differently. My customers understood this and trusted me. Know your opponent, know his weaknesses and take advantage of those weaknesses.
It’s the erratic behavior out of the White House that worries me and while it is more of a political situation, it has vast economic implications as well.
I do not like the use of the term “TACO Trade”. I don’t follow it and while some traders may have found a pattern to increasing trading profits, I think it’s dangerous. Just like an opposing broker thinking he has me figured out. I sense it immediately and do something he has not expected. He ends up looking foolish. I end up having happy customers.
The erratic behavior from the White House may be part of a master plan Donald Trump has. Who knows. As president, you should have secrets and objectives for every major action. The public doesn’t need to know. Why let your adversaries know either. However, I get the feeling and I think I have mentioned this before, The administration went into Iran with the right motivation. They have pretty much succeeded with the initial plan but the ground has shifted now and what is the actual plan? I think it’s safe to say that the administration did not expect things to turn out the way they are turning out and with that being said, is the plan going to change?
This possibility remains and markets have continued to react to the possibilities.
Markets abhor a vacuum and right now, we are in a vacuum.
To be honest, given whats been going on and the fact that I have said months ago that I thought the market was getting more and more over valued, I am surprised we haven’t sold off further and faster. I would have thought that we would be testing 5,000 on the S&P.
Looking at my portfolio and deciding I am still not where I want to be, I continue to sell. Right now I am around 38% in cash, 10% fixed income, the rest in equities. I expect to be around 50-55% cash by May. When everyone decides to “sell in May and go away”, I will be back selectively buying everything I like at much lower prices.
Free advice, let’s hope my call isn’t as bad as my recession calls.