Weekly Update, January 28, 2018

Weekly Reads

  • Lance Roberts with a solid risk warning https://seekingalpha.com/article/4140732-davos-warnings
    • Here is a good quote for reference / relative perspective because sentiment (emotions) is probably the wildcard variable in most of our strategies:  “On a weekly basis, a correction back to the 52-week moving average would require a bit more than a -14% decline while a correction back to the long-term trending average would be roughly -28% from current levels.  As I have said before, given we are now in the longest stretch in market history without even a 3% correction, 13% to 14% is going to “feel”worse than it is, and 28% will be equivalent to a full-fledged crash.”
  • Here is slightly different take on the valuation risk
    • A good quote here and will be important to see if after all companies report the revenue growth is similar:  “Earnings Scorecard: For Q4 2017 (with 24% of the companies in the S&P 500 reporting actual results for the quarter), 76% of S&P 500 companies have reported positive EPS surprises and 81% have reported positive sales surprises.”  — Given the level of financial engineering in earnings, i see revenue growth as a more reliable indicator.
    • I tend to agree w/ this point but it is surely painful to hold these now (sigh):  “Sector rotation will continue to rule the day. For those that think the merry go round is about to end, look for money to find a home in the beaten up “safe” world of Utilities and REITs. Then again, that isn’t such a bad move for all to consider now. Dabbling in those laggards now may look like a genius move later.
  • This post is framed in politics which is a distraction imho.  the points about an absence of GDP growth is way more interesting and then complicated by our politics to spin reality https://seekingalpha.com/article/4140683-still-far-short-3-percent
  • A perspective on why rates will continue to rise and yield-based investments will become cheaper https://seekingalpha.com/article/4139445-seesaw-interest-rates-reits
    • I am still not convinced
  • Doug Short published an interesting data set on Durable Goods.  the key point for me was two-fold:  a) a highly unreliable indicator given is level of variance month to month and b) the trend seems to be reversing https://seekingalpha.com/article/4140666-headline-durable-goods-orders-2_9-percent-december\
  • I have not taken the time to walk thru the 19 articles, and probably will not read all, but this is the heart of my financial readings next week (beyond the news) https://www.savvyinvestor.net/blog/portfolio-management-trends-2018
  • A BlackRock post is interestingly not unique and uses language i had to really parse thru due to its thickness and industry complex vocabulary, e.g., …”positions exclusively in positively convex assets”.  i had to read what convex means in this context and the author added a link –  https://www.investopedia.com/terms/c/convexity.asp
    • Here is another quote that i found telling and agree with: “Specifically, long-dated developed market bonds now offer a precarious combination of ultra-long duration and low yields, which may result in carry breakevens that don’t cover even one half a standard deviation move higher in yields. Similarly, low or negative, yields in short-dated European and Japanese government bonds represent essentially no value whatsoever to investors today, in our view. In contrast, the front end of the U.S. rates curve now offers compelling carry with minimal duration risk on the heels of the late 2017 rate backup.”
    • I may be a bit longer than this view with recent purchases at ’26 and ’27 maturities and ETF in 10yr space.  The 2yr treasury ETF is almost interesting too … but my conviction is not there yet.
  • Another BlackRock post that when i read carefully nuances further their expectations on rates (globally and @ US) and bonds.  I am still less positive on US inflation increaes.  https://www.blackrockblog.com/2018/01/23/investing-implications-inflation/
    • But the post also further makes the case for carefully watching of inflation indicators … it’s both a risk mitigation play as well as an investment timing question (put cash to work) if inflation continues flat /dow and disappoints the rate pushers.

My actions and concerns

  • picked up a small position of Berkshire Hathaway 3.12% 2016 bonds … this pretty much fills my ~3% capital preservation tier … next tier will focus is still TBD based on rates and the remaining earnings digestion
  • QTS remains a problem child … $49.50 is my stop loss mark and if price increases, i will up the stop-loss accordingly.  I will not invest more $ at this time.
  • O remains a problem child … not so much on the price but on the long term risk.  my bias is starting to go increasingly negative on triple net regardless of their diversification and quality holdings.  lease renewals are going to be challenging ahead … will swap out to cash most likely in taxable, and look to preferred stock in IRA
  • Struggled to hold my trigger finger on PGX – i concluded that i will use non-taxed accounts for perferred stock and will mostly use ETF approach … watching for lower entry point
  • Additional stop-loss points will be added as well across my portfolio and will once again look to SPY puts

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