"Yesterday is a cancelled check. Today is cash on the line. Tomorrow is a promissory note." -- Hank Stram
Cash Is King
Interesting. Bank of America Merrill Lynch's Fund Manager Survey, which made the rounds on Wall Street on Tuesday, showed that an unusually high number of participants had taken on higher levels of risk. The survey showed cash levels at 4.4%, which would be a four-plus year low. Hmmm. I usually run with a cash level between 20% to 25%. You know, in case the boiler blows, or a relative needs bailing out.
This is interesting to me, because I have gone the other way of late, significantly raising my cash levels. Starting with the peaks of early November into the wobble seen across the marketplace last week, I have seen my cash level reach 48%. If we should see this swoon deepen, I can go shopping in some the same faves that I have been selling. This is a discipline thing, gang. I have preached this, and preached this. Rule number one, when spending hard-earned money on any investment, is to know where you want to go.
Would you leave New York to drive to your friend's house in Pittsburgh by simply picking a road that sort of seems like it might lead west? No. You probably would put your friend's address into a GPS device, or if you are old like me, print out driving directions, and plot the course on a map. You don't just hope that you end up close enough to your friend's address to spend some quality time there.
Investing your money is something that needs to be taken seriously. I have pounded the table on behalf of Walmart (WMT) . I sold my Walmart on Tuesday. I have been a fan of the mouse. I sold my entire stake in Disney (DIS) on Friday. I have long been a fan of Kratos Defense (KTOS) and Lockheed Martin (LMT) . I am two thirds of the way out getting of KTOS, and sold off the LMT two weeks ago.
I am still a believer that our equity markets will go higher in the long run. Heck, that's been a solid bet for a while. No? I even still believe in every firm that I just mentioned. Why sell now? Earnings season has wound down. Tax reform is a potential problem. Valuations are not as scary as some think. Price targets, dudes. When you have done your homework, you then have a plan. When you have a plan, your life becomes easier.
DIS above $105? Easy. Walmart above $91 in front of the numbers? Easy. KTOS above $11? Easy. Let emotion work itself into my decision making? No way. Miss the chance to get back in? LMT is getting close to where I sold it. I am not yet back in. Stock never reached my downside target. Do I chase? I'll live. I have not left myself unexposed to the space. Diversification. That's another discipline. On top of that, you know I'll be spending some increased dough on my General Electric (GE) long real soon. To know what I think on GE just look at Tuesday's chart of the day, or search me on CNBC's web site.
The lesson I try to teach is simple. Have three targets in mind for every position held, or at least every position that you really care about. If you throw some speculative money at something difficult to value, or to figure the technicals on, that might be different. My thinking is that you need to have a target price. Then you need to have an aggressive target price in the back of your mind. That allows you to change your mind one time.
I did that recently with Apple (AAPL) , which is also a holding of the Action Alerts PLUS, which Jim Cramer co-manages as a charitable trust. Target price met. Adopted my next level. Should I have sold it in the mid $170s? Perhaps. At least I am playing with house money there. Lastly, know your panic point. Truly, this is anything but a point of panic, because this spot is part of the plan. Some call it the point of the stop-loss. I think of it as the point of decision. This is where you can decide that you have made a mistake, or add on weakness (for longs). If you choose that latter route, there must be a new course plotted. No "I thought I would take a shot here" trades. Those types of trades are for rich people and amateurs, not for two-fisted kids with something to lose.
-- Tech. Particularly the semis. Yes, still.
Is Not Giving Up
-- On energy.
Wants to Like
-- The banks. Undervalued, but if only...
Is Concerned by
-- The recent strength in Utilities, and the potential for quality tax reform.
Cash as a Position
You heard Bank of Japan Governor Haruhiko Kuroda this week. You've all seen how ECB President Mario Draghi and his crew seem to cringe at the thought of tightening monetary policy, despite the fact that their respective economies now scream out for some normalization. Might continued levels of crisis-inspired easy policy exacerbate future problems? According to Deutsche Bank , 17% of currently outstanding bonds trade at a negative yield. Nothing to see here. Move along.
Low individual cash levels. Greatly increased passive investment, or what I refer to as the abdication of personal responsibility for one's future. Recipe for a future liquidity crisis? Perhaps. I do not have a crystal ball, and I am not always correct in my vision. What I try to do is understand the environment within which I must exist, then adapt to that environment in a way that allows for excellence. There is no secret formula -- but "set it and forget it" is not a strategy.
The New York Fed released some data on Tuesday that appear interesting as well. As the third quarter came to a close, total household debt reached $12.955 trillion, a 0.9% q/q increase, and the 13th consecutive quarterly increase. Though this is a staggering number in real dollar terms, in terms of its percentage of U.S. economic output, we are still a long way from pre-crisis levels. Currently, household debt is running at 66% of output, whereas in 2009, household debt ran at 87%. Yet, that is not where we want to end up, is it? 4.9% of this debt was delinquent. Auto loans are up. Student debt is up. Credit card debt is up. Time to worry? Sign of confidence? Yes. Don't run up and down your block like Chicken Little. Just be cognizant of the trend.
Difference of Opinion
On Tuesday, we discussed OPEC raising their expectations for global demand for both this year and next. The former cartel expects global demand to rise by 1.53 million barrels a day for full year 2017, and by 1.51 million barrels per day in 2018. Well, the IEA, or the International Energy Agency, is looking at things a little differently. The Agency now expects global demand for crude to rise by 1.5 million barrels for full year 2017, and by just 1.3 million barrels per day in 2018. Hmmm.
That, my friends, is how the cookie crumbles, and why I explained in yesterday's Recon why energy traders need exposure to natural gas as much as they do to crude. You see, the ones that have something to sell are always going to see reasons for greater demand. That's part of talking up your product. Now, increased U.S. shale production could become a problem. Inventories and rig counts will regain the investor-based focus that those data-points had enjoyed for most of the past two years. Now, as oil traders, we become less intent on deciding if WTI can make a second run at $58, and more so on if the commodity can hold the $54 level should the weakness reach that spot. Smile, gang. It could be worse. It could always be worse.
Tweet of the Day
For those that follow this yield relationship closely, the differential between 10 year Treasury #bonds and German bunds is at 200 'ish basis points -- helped by this morning's higher US #inflation print. #economy #markets— Mohamed A. El-Erian (@elerianm) November 14, 2017
Sarge's Trading Levels
These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.
SPX: 2595, 2585, 2579. 2573, 2567, 2558, 2548
RUT: 1493, 1482, 1475, 1466, 1457, 1451, 1446
Today's Earnings Highlights (Consensus EPS Expectations)