Looking Back and Looking Ahead

1st off I am thankful to all for keeping the comments throughout the website fairly civil–a little bit of testiness here and there, but not terrible given our current situation. Thanks all. I did find out that my spam parameters for ‘four letter words’ doesn’t include ‘shitstorm’–it seems pretty descriptive so I will let that go.

Last Friday morning–very early (I was up at 3 a.m.) I looked at the futures market and smelled opportunity as it was up 900 points–again. The market had been yo yoing fairly predictably but I ‘felt’ (a technical term–meaning a gut feeling) that this was not to last this time–which is why I wrote on Friday morning to ‘get your portfolio’ in order.

In a ‘even a blind squirrel finds a nut’ moment the market did exactly what I thought would happen–in particular leading into a weekend and with the day being a quadruple witching day.

I unloaded everything I wanted to be rid of in the 1st couple hours and then I went ‘short’ via the Proshares SP500 Ultra Short EFT (SDS). Then each little bounce I added to my short–by the time the day ended I was up 1.5% on day. At this point I am mainly holding utility baby bonds and preferreds and CEF preferreds. I held my short right into the close as I would be shocked to see market shoot higher Monday–if it does I am going to get spanked–but I will take the risk. My cash level is now around 50%.

Here is what I see happening in the days ahead. Continuing shutdowns throughout the country–I see no reason whatsoever for this to change. A continuing economic high stress level–everywhere. Yes there are some businesses that are benefiting from the Covid 19 outbreak, but unemployment and business shutdowns will overwhelm any benefits. There is no immediate relief with potential treatments–yes they are out there, but not close to being a known effective treatment.

Yes–for the time being I am very negative–on markets–but I am very optimistic on the future. Remember the $7-8/share preferreds back in 2009? I think we will see more chances for them in the next 2 weeks to 30 days.

So my plan is–watch–no buying and determine if I have to start backing out of some utility positions–I hope not but we all need to have cash–which means we have to preserve the stash–one way or the other.

If we get a sharp market run higher tomorrow I am going to have some losses on my short position–but I don’t think that will happen, but we will have more of an idea in an hour when the futures markets open up.

18 thoughts on “Looking Back and Looking Ahead”

  1. Feeling a storm coming, I opened positions in – DXD, EDZ, SDS, SPXS – about 4 weeks ago, almost at the complete market high. Meaning, they were all at their low point!
    Sold portions as they rose significantly on the market slide. Still holding 60%+. While I too have taken significant portfolio hits, these short-products have really performed and limited overall asset destruction. Another benefit I realized with these – they have Options! I have been able to generate continued cash through selling and rolling Calls without needing to sell the underlying.
    Like other ‘asset-class’ diversification strategies, I will probably hold a portion of these just for ‘insurance’. Even if/when they eventually fall near my original cost-basis. Probably around 4 – 6% of portfolio.

    I too am not very hopeful of the FEDs ability to effectively manage this current situation. It really is far different from ’08/09, 2000, ’87, et al… Those were primarily economic/financial/over-leverage driven. This time there are more global, social, and health factors. Not really in the FEDs domain.
    yet, eventually, recovery, or exhaustion will emerge. When??
    As some pointed out, 08/09 destroyed a lot of wealth for those older, without the time availability for recovery. I am thinking 4 – 6+ years now.
    JMHO … of course.

    Good luck to all….

  2. Tim,

    “I unloaded everything I wanted to be rid of in the 1st couple hours and then I went ‘short’ via the Proshares SP500 Ultra Short EFT (SDS)”

    Same here, I am about 50-60% in cash.

    If I may ask, approx. what % of your account did you invest in SDS?
    Somewhere <$10%, around 50% or more?

    I could not allow myself to buy more than 10%, fearing a big jump when the gov. tries to artificially keep us alive.

  3. Tim, for those of us who are simply looking for assurances that dividends will not be suspended, and would trade a somewhat higher stock price for that assurance, this is very different than any other crash in history. When so many businesses are shut, when utilities will not suspend your service due to lack of payment, when a person cannot be evicted for non-payment of rent, it becomes impossible to be able to predict whether your preferred stock’s dividend will be sustained. I even feel guilty asking this question when the employees of that preferred stock’s company may not be working anymore. So, if you could make a new spreadsheet with preferred stocks whose companies will not suffer significant cash flow issues because of this crisis, that would be the only chart that has meaning to me today.

  4. Sooner or later, we will get a very sharp (maybe relief) rally. I just hope I have the courage/wisdom to sell into it and not assume the worst is over. Many of the Wall St. firms and investment advisory firms, who basically have to be optimistic to make money for themselves, are now predicting a strong market by the 4th quarter. That makes no sense to me based on how our country is basically shutting down. They are predicting not a V curve but a U curve. I think we might have an L curve for a year or two or three. I see no reason to be optimistic. The fiscal rescue package will just make the pain a little more bearable. I hope it gets down to the smaller companies and desperate individuals/families. Unfortunately, the big firm/industry lobbyists are currently like hogs at the feeding trough. Hope I’m being overly pessimistic..

  5. Bloomberg.com/markets/stocks/futures
    Dow Jones mini: down 954 (LIMIT)
    S & P mini: down 114.5 (LIMIT)

    Hold onto your hats tomorrow!

    1. Golfer–thought that would happen–virtually nothing good has happened over the weekend–the federal government is proving their incompetence day in and day out.

    2. The Democrat filibuster of corona relief is killing the market. Am egregious irresponsible act .

      More Americans livelihoods will be irreparably damaged tomorrow as a result.

        1. Tell that to those small businesses closed with zero cash flow who won’t survive.

          Tell that to all those service workers who live paycheck to paycheck now out of work wondering how they will survive

          Hyperbole and hilarious. Really? I don’t find the destruction of people’s businesses and lives funny because Pelosi and Schumer want to play political games

  6. Hi Tim, I am following you all the time and I learn so much from you and the others …where do you look for the futures markets ? also where can I find a list of baby bonds?
    Thank you ,

  7. Thanks Tim for letting that one go. I wrote a comment earlier and it bears repeating in short form. What is really and truly sad for millions of people and especially the group of 60+ year olds like many of us is the “fact” that their lives are now changed forever more. Many have lost 20,30, and well over 40%. And I don’t see this thing getting any better anytime soon. With the law of mathematics if you lose 50% of your net worth you now have to have a 100% gain just to get back to even. My point was I feel quite bad for millions and millions of seniors who have been “Chased” into the market by a Fed that has put them in a situation where there is NO YIELD available to anyone except to chase after things they probably had no business buying in the first place. We’re probably all a little bit guilty of that but many will have to drastically alter their lives now “FOREVER”. And since this is a financial website that is really sad. I still think that this could have “possibly” been prevented but I guess we will never know for sure. Good Luck to all in the coming weeks and months.

    1. Chuck–in 2009, 10 and 11 – obviously very different circumstances, many many folks left the market and are gone from investing forever. Yes I feel for folks who have likely lost money they needed badly for a reasonable retirement. Unfortunately some websites pump stuff that folks have no business buying (as you said), but folks watch gains of 10% every year and eventually think they should partake–I don’t take that bait–I always hope for gains of 7%–it is extremely hard to earn 7% year in and year out–I would say near impossible in this interest rate environment.

  8. Sailing into the storm, trust there is a safe harbor ahead, even if it takes a couple of years. Good luck, everybody, and thank you, Tim, for the III community.

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