Guess What? You Don’t Need To Own Stocks

But Mom…..Everyone Is Doing It!

Rarely is the consensus right.

To see the reversal higher in the S&P’s post-Brexit is truly one for the ages.

One can never argue with price action – it is always correct.

But if you are paying attention you cannot help but wonder when this buy the dip mentality will run out of steam.

Don’t hold your breath, despite……

  • Year over year decline in the earnings
  • Declining ISM readings
  • Leveraged stock buy-backs
  • Stocks are expensive by ANY measure

…..investors continue to worship at the Altar of The Fed.

If you don’t have critical thinking skills it is easy to fall hook line and sinker for such a flawed strategy.

7.3.16twitter

Those that put some effort and thought into the process have been rewarded far more handsomely and without the associated risk that overvalued stocks get their clock cleaned on any given day.

As the chart below shows, gold, oil and commodities are the big winners this year – and Aspen clients have been long gold. In fact, we are having a great year in our Stock/Options Alerts Service – outperforming the S&P’s by a wide margin with far less risk.

7.3.16ytdPERF

Source: Momentum Structural Analysis

And while this comes as a surprise to many, the S&P’s have gone nowhere since 2014.

That means the vast majority of investors have had massive opportunity costs as their 401k plans do not offer the ability to select asset classes that are better positioned.

But Wait…..There’s More

It is true that investing for Armageddon is a strategy with low a probability, but investing to take advantage of an event is simply prudent.

However, while looking for an unravel due to the excesses is a smart approach and offers either a hedge or an alpha generating opportunity, timing is of course key.

Consider what Kyle Bass noted in a recent interview on RealVision TV

With $2.5 trillion in assets, global pension plans are in a bit of a dilemma as their obligations in the future are pretty steep relative to what gains in equities have been recently.

It could simply beget a situation where money chases prices higher based solely on momentum versus logic and price discovery.

That is a very possible outcome and one that is impossible to gauge.

My approach?

Quit trying to forecast where the S&P’s go and simply focus on select asset classes where there is a clear narrative and price discovery is in play.

Don’t Be An Index Manager in Drag

Here is what I am focusing on.

  • Short GBP/USD

7.2.16gbpTARGET

  • Re-establish longs in TLT – the simple fact is rates in the US will continue to move lower – driving bond prices higher.

7.4.16tltPERF

  • Continue adding to GLD and NGD – positions that have done very well for us thus far.
  • Algorithmic Trade Set-Ups (ATSU’s) – let the mechanical component of my trading approach continue to chip away – in fact, we just issued 3 new ATSU’s on Sunday.

Have a great trading week – and don’t get blindsided by reckless central banks!

Dave

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