This is what a bear market feels like. I have lived through so many. My first was when I was a teenage intern in 1987 at an asset management firm in my hometown, the financial hotbed of Lebanon, PA. That was a doozy of a correction, but did not lead to a bear market. In fact, old-heads will tell you that the DJIA actually finished 1987 with an annual gain.
But here is what those same old heads won't tell you, or at least if they work for large asset management firms, or even worse, investment banks, where I spent a decade of my life: The Game Has Changed. Risk-on has been replaced by risk-off.
It is just not in anyone's best interest on what we call the buy-side or the sell-side to tell you that. There has just been so much nonsense foisted on the average investor, that credibility becomes a real issue.
You have a Fed led by the feckless Jerome Powell, who has zero credibility with Wall Street owing to his incredible predictions of "transitory" inflation. On the other end of the bench you have the Tweedledee and Tweedledum of pseudo-science, John Kerry and Al Gore, ranting on about a melting planet against a sea of evidence to the contrary. This ESG-mania has directly contributed to runaway inflation, by making the natural capital-raising process for energy companies a real chore, and thereby depriving the globe of much needed supply of oil and natural gas. Thanks for $5/gallon gas!
Off to the side, you have Cathie "$12/barrel oil" Wood, and other luminaries like BlackRock's (BLK) Larry Fink, who have collectively increased the cost of capital for energy companies with their ESG mandates. Finally, you have the so-called financial experts on FinTV.
That's what 35 years of trying to read these tarot cards has taught me. You never receive good advice from Wall Street in a downturn. But a downturn has to be connected with a pronounced economic slowing to produce a real Bear Market. In 1987, that crash was more a result of technical factors, but the underlying economy was still in the midst of the Reagan Revolution and quite strong. The Tech Bubble was similar. The market saw a massive rotation away from profitless tech stocks - sound familiar? - but the underlying economy managed to hold the damage to a mild slowdown in 2001-2002.
Obviously 2008 was quite different. The plumbing of the financial system was impacted by the collapse of Lehman Brothers (my first Wall Street firm that I had the good sense to leave in 1994) and the global economy was whipsawed.
Covid famously produced "the shortest recession in US history." But self-congratulatory hype amongst the financial technocrats of the world merely served to embolden that bunch. So, they proceeded to produce an annihilation of the value of fiat currencies via an extraordinary money-printing binge by central banks coupled with a money-distributing ("stimmies") binge by global governments. Who thought that was a good idea? Who did not think money-printing and money-foisting would not produce generational-high rates of inflation? Not I. Go back and read my old Real Money columns. I will stand by my record.
You have to feel the market's vibes, and yesterday, I felt fear. Real, once-in-a generation fear. But that fear can only be fatal to portfolios when it closely follows a period dominated by its old Wall Street bedfellow, greed. To go back to unbridled greed and incredible over-pricing of assets you would have to go all the way back to... November. Yeah, it's been six months. In the course of that period the narrative has shifted 180 degrees.
My firm, Excelsior Capital Partners, began introducing model portfolios for individual investors, beginning with the energy stock-laden HOAX on 12/23/21. Yesterday morning HOAX reached the point of doubling the performance of its benchmark (ARKK) (HOAX up 40%; ARKK down 60%) which is an extraordinary performance in less than five months. Since HOAX's initiation I have added HOAX 2.0, two short-then-reinvest portfolios, SHORT and FKBGT (whose short holdings have declined a collective 42% since its inception on 4/13/22) and, finally, for those who absolutely HAVE to own stocks, DFNCE.
Transparency is a core value at ExCap.
But, yesterday, I felt a disturbance on the Force I had not felt since Lehman Monday. It's time for me to stop taunting Cathie and Elon (who actually builds things, which, as a long-time auto industry analyst, I respect immensely. I just think he has been sold a bill of goods on Twitter (TWTR) by Morgan Stanley (MS) ) and to go after companies that have a real chance of failure.
Yesterday at 11 am, I performed the short-lock on DEATH. This is a portfolio of 10 of the most financially unstable companies I have seen in 30 years of researching stocks. There are some losers in this crew. As recently as last November, though, Cathie and her cronies were extolling the virtues of many of these names.
DEATH rose by 8.5% in its first five hours of existence. I use diversification to balance my portfolios, and proceeds from the short sales that created DEATH were reinvested in Hartford preferreds, (HIG-G) . An investment in an incredibly stable company funded by bets against incredibly unstable ones.
The companies in DEATH should die. Chapter 11 reorganization on a mass level is actually healthy for the U.S. economy. Bankruptcies produce stock values of $0.00, though, and that's what we want to exploit on the short side.
Sometimes "not owning crap" is not enough to produce alpha in your portfolio. Ya gotta go for the jugular.