To quote Axl Rose, there's a lot goin' on. In the midst of today's brutal CPI report and adding yet another stamp to my passport, I will keep it brief today.
The bond market is getting crushed today. Use this link as your guide. Always. When Treasuries are being sold off, that is an indication that either a) inflation expectations are increasing, or b) things look so great for equities that balanced funds just "gotta have more stocks." We know that b) is not in effect these days, so we are staring right at a).
Also, this is happening at a time when the Fed is reducing, albeit gradually, its purchases of Treasuries. Economics is based on the marginal buyer of any asset, and the Fed, for reasons only Powell could explain, has held the marginal buyer role for USTs for a decade.
You really want to watch the yield on the two-year just now. The 10-year UST is more liquid, but the two-year is the best gauge of Near-Term inflation expectations. This chart just made me say "Wow!"
If you pardon the commercial, I will break down tactics using my seven model portfolios.
HOAX It is so tempting to start taking profits now on our energy winners, but don't do it! HOAX has risen 44.5% in just under six months - vs the 58% implosion in its benchmark Cathie Wood's (ARKK) - but this is not the time to take profits on energy names. We are playing inflation, not being played by it.
The cash flows that majors like HOAX components (XOM) , (CVX) and (PBR) generate with both Brent and WTI above $120 and Henry Hub natgas at $9/mmBtu are majestic. Those cash flows are returned to us as dividends and the high-yields of the individual HOAX components insulate the portfolio against a backdrop of higher bond yields. For HOAX, the best action is... inaction.
HOAX 2.0 The fundamentals of HOAX 2.0 are not dissimilar to HOAX, but the launch date was April 5th as opposed to December 23rd. The market's inflation expectations changed greatly in that time period. While HOAX 2.0 is destroying its benchmark, (QQQ) , by a full 12 percentage points, HOAX 2.0 itself has actually produced a capital loss (6.6%) since inception on 4/5/22. As dividends are received, that capital loss will naturally trend toward breakeven, and with eight of the 10 HOAX names having fallen since 4/5 ( (HES) has produced a nice gain, and preferred stock (SB-C) is flat) I am looking at HOAX 2.0 names like (BHP) , (VALE) and Norwegian fertilizer play (YARIY) as 11-deeper-value names. Stay the course.
SHORT and FKBGT. This is not he day to be covering shorts. FKBGT has produced a 37% blended increase since inception on 4/13, and let me tell you, we are just getting started. SHORT has names that will gradually feel the pain of slowing economic activity, so those trades will take longer to mature. That said, SHORT has already returned 12% since inception on 6/5, so I'm not complaining. If SHORT is in the 3rd inning of a nine inning game, FKBGT is in the first inning. What we have seen so far from Big Tech has been a valuation correction, but the actual impact of slowing revenues ( (SNAP) 's profit warning was a huge canary in the coal mine here, although SNAP is not included in FKBGT) will bring a second leg down in these stocks.
DFNCE is crashing its benchmark, (TSLA) , by a full 18 percentage points. That said, with a decline of 10% since inception on 4/25, it is reasonable to ask how defensive the names in DFNCE are. (GPC) and (AM) have provided gains, and I would not sell those two names at gunpoint here. (AZO) and (CF) also look strong to me, and I can do nothing but offer a mea culpa for including (TGT) in DFNCE. Saying to myself, "I am a RedCard holder and enjoy shopping at Target',' was not enough analysis in a bear market. Do better, Jim! I look forward to more relative performance gains from DFNCE as the dividends (TSLA has never paid one, nine of the 10 names in DFNCE do) start to roll in.
PREFS has done virtually nothing, with a decline of 1.14% since inception on May 27th. That is exactly what you want from a fixed income portfolio. Any depreciation in values versus par- six of the 10 names in PREFS are still trading at premia to par - is simply a "cost of doing business" to capture those tasty dividend/income payments - PREFS has a blended yield of 6.6% - as time passes.
DEATH stumbled out of the blocks, but the short-only portfolio has regained footing this week, and is now down only 3.3% since inception on 5/11 at midday. While I was sweating the virtual losses when the DEATH names jumped, the fact that there has not yet been a full correction - four of the 10 names are still higher than their short-lock values - tells me that this market is nowhere near capitulation. Until DEATH begins to die, we won't have hit an inflection point in terms of risk-off appetite.