7/23/2018
In the past 2 months, I've almost completely divested from my non-retirement accounts. It's going to be a slow grind down to the wire, I'm out of everything that probably won't significantly improve before the downturn. There isn't even a panic yet so there's no point in panic selling, and if there were a panic it'd end up as little-late-last-chance-to-sell sell or maybe just keep holding forever.
The markets are reacting about how I expected and selling has been fairly easy given we're still a few quarters away from anything dramatic and there's a quarter between us and the concern around Febuary. The VIX was at 17.02 after my last post, spiked again to 17.91 a month later, and has otherwise been hovering around 13. The TED was 40.72 and the S&P was 2690. Volatility is down, true, as that little dustup in February is a distant memory in trader's minds.
Indexes (30, 180 day looks)
VIX: 12.62 (-8.35%, -25.24%)
TED: 35.26
S&P500: 2807 (2717, 2670)
I have to hand it to Jerome Powell (Fed Board chair) for being committed to doing the rational thing and continue to raise interest rates, so we're probably not headed to the scenario where the financial markets implode as inflation dramatically outpaces interest rates. The CPI is up 2.9% since Jun 2017, and the Federal Funds rate is 2% (1.25% one year ago) so the widening is continuing as expected, but Mr. Powell seems to be more neutral on monetary policy which leads me to believe that when these micro-dose increases don't curb inflation sufficiently he'll step it up to more appropriate levels.
President Trump, a would-be real estate developer and Casino operator seems to subscribe to the classical view of interest rates. On about July 19th the president expressed disapproval of Jerome Powell's decision to keep raising interest rates (to Joe Kernan on CNBC), "I don't necessarily agree with it, because he's raising interest rates . . . I'm not happy about it. . . Our currency is going up and I have to tell you that puts us at a disadvantage." This position, that if interest rates are low and so is unemployment inflation doesn't matter is just wrong, as evidenced by the 1970s. Thankfully the Fed Chair doesn't serve at the pleasure of the President.
While Mr. Powell has stated on the record he intends to keep the Fed apolitical, I expect rates to continue increasing slowly as opposed to 100 basis point jumps though I think he'll be hard-pressed not to raise them to at least the rate of inflation after the Mid-terms in November. As a-political as the Fed might be, I sincerely doubt any significant raise will occur before that and I expect an increase of 25 to 30 basis points by the end of the year, leaving the Fed rate at about 2.3% by year-end as inflation passes 3.2%
So with that in mind:
I'm expecting volatility to continue and a relative plateau of the S&P500, perhaps with a slightly downhill lean. To that end, I'm holding on to DIS, OLED, AMZN, UNH, KO, MO, WMT, IMBBY, EXC, WMT and my S&P500 ETFs for the time being until I have reason to sell, likely next year when the downturn is proximate or a significant uptick occurs. My 1-month Treasuries have been working well. It turns out CDs are fairly competitive with treasury rates with 1-month bills yielding 1.87% vs CDs 1.8% and three-month bills 1.96% vs 1.95%, without much of a relevant difference the CDs are a little easier to manage through my broker so I've tilted that direction.
In the past 2 months, I've almost completely divested from my non-retirement accounts. It's going to be a slow grind down to the wire, I'm out of everything that probably won't significantly improve before the downturn. There isn't even a panic yet so there's no point in panic selling, and if there were a panic it'd end up as little-late-last-chance-to-sell sell or maybe just keep holding forever.
The markets are reacting about how I expected and selling has been fairly easy given we're still a few quarters away from anything dramatic and there's a quarter between us and the concern around Febuary. The VIX was at 17.02 after my last post, spiked again to 17.91 a month later, and has otherwise been hovering around 13. The TED was 40.72 and the S&P was 2690. Volatility is down, true, as that little dustup in February is a distant memory in trader's minds.
Indexes (30, 180 day looks)
VIX: 12.62 (-8.35%, -25.24%)
TED: 35.26
S&P500: 2807 (2717, 2670)
I have to hand it to Jerome Powell (Fed Board chair) for being committed to doing the rational thing and continue to raise interest rates, so we're probably not headed to the scenario where the financial markets implode as inflation dramatically outpaces interest rates. The CPI is up 2.9% since Jun 2017, and the Federal Funds rate is 2% (1.25% one year ago) so the widening is continuing as expected, but Mr. Powell seems to be more neutral on monetary policy which leads me to believe that when these micro-dose increases don't curb inflation sufficiently he'll step it up to more appropriate levels.
President Trump, a would-be real estate developer and Casino operator seems to subscribe to the classical view of interest rates. On about July 19th the president expressed disapproval of Jerome Powell's decision to keep raising interest rates (to Joe Kernan on CNBC), "I don't necessarily agree with it, because he's raising interest rates . . . I'm not happy about it. . . Our currency is going up and I have to tell you that puts us at a disadvantage." This position, that if interest rates are low and so is unemployment inflation doesn't matter is just wrong, as evidenced by the 1970s. Thankfully the Fed Chair doesn't serve at the pleasure of the President.
While Mr. Powell has stated on the record he intends to keep the Fed apolitical, I expect rates to continue increasing slowly as opposed to 100 basis point jumps though I think he'll be hard-pressed not to raise them to at least the rate of inflation after the Mid-terms in November. As a-political as the Fed might be, I sincerely doubt any significant raise will occur before that and I expect an increase of 25 to 30 basis points by the end of the year, leaving the Fed rate at about 2.3% by year-end as inflation passes 3.2%
So with that in mind:
I'm expecting volatility to continue and a relative plateau of the S&P500, perhaps with a slightly downhill lean. To that end, I'm holding on to DIS, OLED, AMZN, UNH, KO, MO, WMT, IMBBY, EXC, WMT and my S&P500 ETFs for the time being until I have reason to sell, likely next year when the downturn is proximate or a significant uptick occurs. My 1-month Treasuries have been working well. It turns out CDs are fairly competitive with treasury rates with 1-month bills yielding 1.87% vs CDs 1.8% and three-month bills 1.96% vs 1.95%, without much of a relevant difference the CDs are a little easier to manage through my broker so I've tilted that direction.
I've decided to keep looking for value despite my outlook on the broader market. I'm not sure I'll find anything but I think I've thought up some interesting leads, so stay tuned.