Weekly Update, December 24, 2017

Lance Roberts weekly update has some rational advise for EOY and January positioning; it may be different this year as folks try to play the best / worst of tax reform between ’17 and ’18.  https://seekingalpha.com/article/4133673-yes-virginia-santa-rally – for me, i am pretty much following Lance with these tactics:

  • It is through following these basic rules that, with the markets overbought, underlying fundamentals stretched, we continue to suggest some portfolio actions be taken to reduce, not eliminate, overall risk.
    1. Tighten up stop-loss levels to current support levels for each position.
    2. Hedge portfolios against major market declines.
    3. Take profits in positions that have been big winners
    4. Sell laggards and losers
    5. Raise cash and rebalance portfolios to target weightings.

Jeff Miller WTWA focused on implications and reactions to Tax Reform (sic?)

Weekly Update, December 17, 2017

From Jeff Miller’s WTWA

  • The S&P one chart of 5 days

    • Less than 1% variance
    • Friday was all Tax reform driven … but look at the drop at end of Friday (I assume traders did not want to hold positions going into weekend and start of holiday tax selling)
  • Small business confidence is really high; many view this as positive, but i am starting to think about this in a contrarian mode … the more optimism, the closer the capitulation.  This weekend i walked around a couple of ‘hot’ areas of Portland and saw a) empty quality storefronts and b) way too much building of condo and apartment buildings with commercial / retail ground floors.  I keep asking if the pendulum has swung too far again … 
  • Investor confidence is similar – the greater the optimism, the closer to capitulation
  • Brian Gilmartin on S&P earnings forecast … revisions are still increasing  http://fundamentalis.com/?p=7428
  • Weekly scorecard

    • 10 yr no change month to month
    • S&P continues up
    • Most indicators flat
  • http://www.crossingwallstreet.com/archives/2017/12/cws-market-review-december-15-2017.html … not sure why Jeff pointed here as it seems like a steady-as-she-goes view … which is fine, but my cautious approach makes more sense to me

Vanguard has what i thought rational advice https://www.bloomberg.com/news/articles/2017-12-04/vanguard-warns-volatile-2018-makes-firm-most-guarded-in-10-years … lower our return expectations and the trigger finger will relax some? I will be happy with low-end returns by the different asset classes / objectives in ’18.

Another cautionary tale from Heisenberg https://seekingalpha.com/article/4132287-mad-mad-mad-mad-world … I too am leary of Bitcoin as too many people are talking about it and looking to ‘strike it rich’ (watched that movie before) … reading this article in conjunction with the Vanguard piece is a rational connection imho.

Century Link — I respect George’s analysis and posts … but on this one my personal ancedote is another cautionary tale https://seekingalpha.com/article/4131345-retirement-security-buy-hated-telecom-just-popped-10-percent

  • We are tired of poor service and price increase from Comcast for internet connection (no phone or cable is worth those prices)
  • Decided to try Century Link (the only alternative at our address to provide the speeds we need)
  • Signed up
  • Scheduled installation for Dec 1
  • They have canceled and pushed the installation 2x and current schedule is Dec 19
  • I have a modem in my hand that i am not paying for and i am losing faith and confidence that they will be able to deliver … crap ‘new user experience’ and if they want to grow, new users should be like diamonds in rough

This is a bucket full of short-term noisy data, but always interesting https://seekingalpha.com/article/4132349-weekly-indicators-whirlpool-crosscurrents-long-range-forecast-edition

One of the “shovels and picks” stocks to ride a US Weed boom https://seekingalpha.com/article/4132284-scotts-miracle-gro-growing-like-weed

  • I am adding to my watch / analysis list, but i am lost confident in US dominant markets … still too much legal churn to place even a mid-sized bet imho
  • I am dipping toe into Canada focused businesses until Sessions lets the states do what is needed

Lawerence Fuller (no relation) has a fairly detailed piece on labor metrics https://seekingalpha.com/article/4132098-news-good-news … i think this focus on real wage growth in the heart of population will be critical to continued growth … right now it does not look so good and the much promised tax help will not help those folks much

I found much to agre with in this commentary – the key two takeaways – 1) future growth (asset values) will be MUCH slower than we have seen since the ’07 banking fiasco, and 2) emerging markets are the interesting allocation looking forward – that’s too general for action.  I am revisiting this question but my inital thesis is:  index asia and eastern europe but select companies in S. America and India (with S. America the MUCH greater risk).  https://www.gmo.com/docs/default-source/public-commentary/gmo-quarterly-letter.pdf

Personal Commentary

  • Reduced my T holding by 25% as my covered call @$35 was executed
  • Started position in IOTS (not a trading position) below $7.00 … think this is about 1/3 of target position
  • Exited FIT in my daughter’s account … two key factors: 1) learned that their SDK requires their own web-based tool (developers in my experience hate being told what tool set they MUST use) and this will severely limit app availability and user experience and 2) crickets from FIT on Ionic sales with consistent disounts across digital retail … entry was $6.15, exit was $6.95
  • Problem children include OHI and PEGI
    • OHI will most likely be removed from all portfolios even after reducing to less than 25% of original position
    • PEGI is open book and right now is my largest single holding across all portfolios (not including ETF or funds)

Weekly Update, Dec 10, 2017

Must read articles

  • Lance Roberts – from investing.com https://www.investing.com/analysis/no-risk-of-recession–120817-200271844
    • the labor and consumer sentiment (wages) are important trends
    • this graph is also important 
  • A post this week on BIP https://seekingalpha.com/article/4130775-buy-bip-preferred-units-common-units 
    • my research has BIP on my watch list and i agree with the author and many of the comments that the entry point now is not a value entry
    • i would like to see common unit yield >4.5%
    • i found the preferred interesting, but not sure i want to tackle the complexity that it is going to bring – taxes and floating rate … this also contrasts with my overally perspective that rates are not increasing significantly (floating rate risk then)
  • The discussion of should i pay off my mortgage given the inflated prices of assets?  — i am having same discussion w/ my partner https://seekingalpha.com/article/4130628-buy-bubble-pay-mortgage
  • Snippets from Jeff Miller’s WTA https://seekingalpha.com/article/4130837-weighing-week-ahead-plenty-cross-winds-santa
      • This is important to watch imho … this will be one of the early indicators of real life (rather than Wall Street’s view)
      • 10yr lower than last month
      • Anticipated inflation unchanged month to month
  • i looked at OMI at same time that i reviewed CAH, but i am not convinced that distribution logistics are going to be an easy road in the near future … automation across the supply chain is going to squeeze margins or even remove distributors.  https://seekingalpha.com/article/4130838-owens-and-minor-ex-dividend-stock-watch
  • https://seekingalpha.com/article/4130822-fragile-handle-care … the point i take from this discussion:  there is a virtuous cycle going really strong and it is NOT reducing risk but pushing it further down the line … just like our politicians keep kicking the can down the road rather than solving the problems.  This could end very badly
  • Avondale published this quote …
    • The cloud still only handles 10% of compute workloads — “I would say some of the numbers I’ve seen is that like 10% of the workloads are in the cloud. I would make an argument that that might even be optimistically, we might not even be there yet. And so, I think we still have lots of opportunity to move workloads to the cloud. And so, I think that will take place not over the next year or two years but more like over the next 5 to 10 years” —Microsoft (Enterprise Tech)
    • if even close to accurate it begs key questions:  what % of workloads CAN be run in cloud AND what % of workloads will companies put in cloud … from my work a year or so ago on enterprise cloud implementations, if that 10% doubles in 5 years i will be surprised.  Does not mean, however, that opportunities do not exist in that 10-20% move … MSFT, AMZN, GOOG, the data center properties … and somebody is going to make money off that network traffic that was once flowing within the company’s walls is now going in and out of those walls.

For my personal accounts … i am watching things very closely and have started putting hard stop loss triggers on paper for every position – weighing three key variables:  a) tax consequences, b) downside risk and c) inherent value proposition of the the investment.  I see a scenario where i up my actively managed cash and capital preservation positions from the current 50% to 60%, leaving the remaining investments equally spread across income and capital growth target areas.

The hardest action sometimes is …

… to do nothing and just watch the price of your at risk stock fall.  Unless something has fundamentally changed with the company or their markets, the value will get eventually measured.  But holding back from selling or even buying more is hard.

Weekly Update, Dec 3, 2017

Jeff Miller’s weekly summary

  • Oddly, he published one of the simpliest characterisations of the recent tax law work
    • The 10yr note rates while up 0.02% the range during the week was far greater and provided some opportunities to take small positions – e.g., VGIT
    • He quoted another writer with the following:
      • “The Dallas Fed reported its inflation measure, the 12mo Trimmed Mean PCE, at 1.60%. Inflation has fallen steadily from 1.94% reported in Jan 2017. Falling inflation is the result of a slower pace of discretionary government spending as noted in my earlier commentary on the differences in Real GDP vs. Real Private GDP. The lower the inflation the more valuable earnings become.”

Other commentary