I will say I have been surprised by how quickly the markets got hit and how many stocks crashed so quickly in the last few weeks. There are probably a lot of great shorts in biotech and health care and still some in energy. But I'm not looking to get aggressively short into the teeth of this decline. We've raised cash, reduced the size of our longs in half and put on some more shorts in the Revolution Investing Model portfolio over the last year.
I certainly wish I'd gone almost all to cash and loaded up on shorts back when I wrote about "The Great Corporate Debt Bubble Casts a Huge Shadow" back in mid-December, just eight short weeks ago, but I am quite proud of how well we've managed these markets.
So what now? I fully expect that Janet Yellen and the Fed will get much more dovish, eventually cutting rates back to 0% and probably bringing back some form of QE, too.
As I've been pointing out, stock markets are more likely to tank during an easing cycle than not. In the last 25 years, we've seen a complete repudiation of the concept of "Don't Fight the Fed." I'd be much more bullish if I thought the Fed was going to go through a tightening phase.
For the next few days, I would expect stocks to rally 1-2% after we hear from the Fed tomorrow confirming its more dovish stance. And then I'd expect more downside of maybe 5-10% in the weeks ahead.
Let me be explicit: I get bullish when the Fed is raising rates and I get bearish when they're cutting rates. I think the old saw "Don't Fight the Fed" used to be very true. But in the last 25 years or so, stock markets go up when the Fed's tightening and crash as the Fed's loosening.
Look back just over the last five years. If you think about it, the Fed has been in a tightening phase since 2009's QE1. That is, the first QE1 was essentially $1 trillion or more in size. QE2 was $600 billion. QE3 was $40 billion a month. While the Fed officially announced tapering in June 2013, it had essentially been tapering (reducing the size of QE, i.e., "tightening") from 2010 through 2015 when it finally officially raised rates.
Like I told Doug Kass yesterday in Columnist Conversation:
As for my longs, I've owned most of the names for a long time. I was buying Apple (AAPL) back in 2003, as noted here on Real Money back at the time. I'm still holding Apple.
Alphabet/Google (GOOGL) I bought the day it IPO'd and also mentioned that on Real Money.
F5 Networks (FFIV) I owned from 2003 to 2007, which I mentioned here on Real Money and in the Financial Times and elsewhere back then, and I've been long it a few times over the last five years or so, too.
Amazon (AMZN) is one I bought as an App Revolution play back in 2011 or so and have owned most of the time since.
I bought First Solar (FSLR) when I went from Alt-energy short bear to Alt-energy long bull back in early 2013.
And Netflix (NFLX) is another App Revolution play that I've traded to the long side over the last few years and currently own.
I'd trimmed Apple, Google, Amazon, First Solar and Netflix when they were at their highs weeks ago. I also hold quite a few short positions, including a few core ones, that are nicely profitable and that I trade around, too. I've taken losses on a few losers, both long and short along the way, of course, but I let most of my winners ride for a very long time.
I don't own as many shares of any of my longs as I did back in 2012 or 2013, but continue to hold core investment positions in long-term positions like these.
It's a tough market for any long positions. My short positions are printing money, though. I have started slowly covering some of them into this ongoing weakness. After all, bear markets have the strongest short-term rallies and I wouldn't count out a 5-10% pop in the next six months at some point (or two?).
But the Bubble-Blowing Bull Market and the App Bubble are popped and the commodities sector is crashed and headed into Depression. Therefore, I plan to remain quite defensive with some opportunistic trading and short-hunting.