Trading Diary: Wall Street and our wintery day of discontent

Funds, traders, investors, everyone hunkers down for that dreaded, totally 100 percent for sure Fed interest increase announcement on Wednesday. Ready to short?

This wintry view from the Prudent Man's Northern Virginia headquarters (03/14/17) looks a bit like the frosty trading action on Wall Street. (Photo by T.L. Ponick)

WASHINGTON, March 14, 2017 – Back when we were in the actual stock market biz in the 1980s, we witnessed first-hand the continual burnout suffered by our in-office commodity trading specialists and their customers alike. Commodities are a high stakes gamble. Though the commissions on these trades can be seductive and customer profits on a successful round trip can be astronomical, so, too, can be the suffering and losses on both sides of the equation.

For that reason, we decided to never get into that side of the business. That’s why, in this column and our second column, we only talk stocks, bonds, ETFs and (occasionally) options. We still regard commodities trading as a place that’s strictly reserved for people who can lose huge amounts of money while continuing to whistle a happy song.

Nevertheless, we do dabble a bit in commodities, via mining companies and precious metals ETFs. True to form, after winning a bit earlier this year on the gold, we’re stuck now in relentlessly declining positions in Newmont Mining (symbol: NEM) and Silver Wheaton (SLW). We thought the prices of these two interesting miners had about bottomed out on the basis of those increasingly likely Fed interest rate increase stories, which will finally play out tomorrow (Wednesday). But maybe both the metals and the miners have further to drop.

Read also: Another glum day on Wall Street as oil, interest rates dominate

It’s generally a truism that when interest rates increase in the U.S., dollar strength increases as well, putting downward pressure on the metals. That’s at least part of what’s happening right now. But it’s been so clear over the last decade or so that mysterious mega-powers (like Goldman Sachs, JP Morgan and the Gnomes of Zurich?) have been manipulating the prices of precious metals that every nice gain gets clobbered by selling out of nowhere. One of these determined efforts appears to be going on right now, so our question is, do we take nasty losses on NEM and SLW? Or do we grit our teeth and hold?

We suspect that tomorrow’s “tale of the tape” will provide us with out answer.

Trading Diary

Pretty much everything is down in the portfolios today. But you have to take these hits somewhat philosophically. Before the current nastiness started to show itself, we started peeling off marginal positions for a profit, so we’re roughly 33 percent cash in our largest account at the moment. That gives us a cushion and makes us ready to do some buying when we sense a bottom in this current weakness.

Aside from our apparent goof in our pair of mining stocks, we’ve pulled out of our oil positions for now (mainly in British Petroleum [BP] and Marathon Oil [MRO]). Ditto the financials, save for robber baron/venture capitalists Blackstone (BX) and our DC home team the Carlyle Group (CG).

We continue to lose ground in our IPO buy of Snapchat parent company Snap, Inc. (SNAP), a risk we did figure on. But, with our purchase of the secondary issue of LA-based investment banking group Houlihan Lokey, Inc. (HLI), we’re up over 8 percent and will get a quarterly dividend paid tomorrow at an annual rate of 2.46 percent. So whether we sell or hold HLI, that’s looking pretty good right now.

We note that our brokerage house is in on the selling group for two IPOs set to go public Friday after a Thursday evening pricing. One is in the oil patch, while the other is, literally, in the clouds—computer-wise. We’ll take a look at these, but if oil doesn’t show some signs of life by COB tomorrow, the first one might be a really bad idea.

Most baffling to us is that our minimal holdings in a pair of short S&P 500 ETFs—the regular short ETF, SH and the double-short ETF, SDS are only slightly positive after a week of holding them, which seems to indicate that investment pros are not that worried about a market dive. At least not at the moment.

In this confusion, we’ll stand pat right now. But if we see panic on the downside before today’s 4 p.m. close or sometime after the market opens on Wednesday, we may heavy up a bit on SH and SDS.

We’ll be back tomorrow, most likely after that Federal Reserve minutes release circa 2 p.m. ET.

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