2nd Quarter Performance: S&P’s +4.5% / Aspen Trading +30%

No…This Is Not Market Timing

The simple fact, and one that so many investors/traders overlook, is that risk/reward is so critical to success in the market.

Anyone with half a brain knows that at current levels, being long the S&P 500 is a lousy reward/risk trade.

I wrote about the headwinds facing the market last week.

Can the market still move higher?

Of course it can. The dunderheads at The Fed have made it pretty hard for stock prices to decline…..for now.

But the risk of a reversal far outweighs future gains which could at best be 5-10%

History shows however it is likely to not even get near those levels based on current valuations.

3.29.16valuations

Lastly, if you think Friday’s jobs data (NFP) was the piece of data needed to re-establish the bull trend, let me know how that works out. Low paying jobs are what are being created.

By contrast, while there was a gain of 59,000 waiters, bartenders and bus boys in the leisure and hospitality category, these are obviously not interchangeable slots, even though the BLS counts them all the same.

To wit, the average goods-producing job averages 40.3 hours per week at $26.90 per hour. On an annualized basis that’s a cash wage of $56,400.

By contrast, leisure and hospitality jobs are part-time, averaging just 26.0 hours per week at an average wage of $14.89 per hour. That amounts to an annualized cash wage of only $20,100. It’s 35% of a job compared to the goods-producing sector.

Here’s the thing. The entire period since the year 2000 has exhibited a process of replacing high pay jobs with low pay jobs, and that process has accelerated during the last seven years of so-called recovery.

Read more: David Stockman: Tax Collections Data Suggest US Economy Barely Above Water

Look For Solid Themes/Relative Valuations

The fact is, if you do a little digging around, you can always find an investment theme that is either unloved and cheap or simply a grossly inflated asset ripe for a decline.

  • Long gold (via GLD) at $109.31 (recent close $130.52) back in August of 2015 and in my opinion despite the 19.4% gain thus far, it has a ways to go still.
  • Long in NGD is up 11.47%
  • Short oil (via USO)  is up 7.83%
  • Closed a short in Valeant (VRX) for a gain of 27.6%
  • Closed a long in TLT for a gain of 3.75%
  • Add in 9 ATSU trades in PDP, SDS and IWM for gains as well

At this stage the choice should be pretty clear….do you want to continue to pick up nickels in front of a steamroller or be a bit more tactical with your investment and trading decisions?

7.10.16fedRISKS

The answer is obvious, if it isn’t, be prepared to delay your retirement because a big draw down is coming and you won’t have the time to recover from it.

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