WASHINGTON, March 10, 2015 – The Maven spent the better part of the day at the eye doc’s and learned that his vision continues to deteriorate. That’s not good news, but it’s old news, since he’s been getting much the same verdict on that since he was nine.
Besides, while the Maven was getting his pupils dilated, Tuesday’s stock market was busy accumulating a worse verdict, tanking savagely on the kind of news we worried about yesterday, namely the direction of oil (down) and the dollar/euro pairing (down also).
As we’ve been observing since late last week, the market has been stagnating in March, carrying through with the kind of behavior it exhibited in the latter half of February, leading us to believe that at least short term, the long bull move has been exhausted. Today, unfortunately, we got particularly violent confirmation of our suspicions.
The Dow took a cliff dive of such proportions and universality that its drop made even Wile E. Coyote look like an amateur. The DJI was off 322.78 at the 4 p.m. close, and, getting hit for a negative 35.27, the S&P 500 was as bad if not worse. Meanwhile, it was those generally slap-happy tech investors who really took it in the ear today as those tech-heavy indexes, the S&P 100 and the NASDAQ, were completely eviscerated, the former to the tune of -83.91 and the latter by an equally awful 82.65.
The Maven’s still-dilated pupils make assessing this kind of damage even more of a chore, but we hung in there with all our pancaked holdings through today’s close. At this point in a waterfall decline, it’s usually best to hang in there no matter how bad it looks, as oversold conditions and a snapback rally can develop without warning, providing far better exit opportunities than a disaster like today.
Today’s trading tips
For the Maven today, the good news was that the hedge suggested Monday by one of our investing services—the S&P 500 VIX Short Term ETF (VXX)—worked nicely for us today. The bad news was that the Maven, being by nature a skeptic, didn’t buy enough of this stuff, so went in for some more albeit at a higher price. We’re in there for 500 shares of this puppy right now and may make it 1,000 if tomorrow’s open induces another Maalox Moment.
Instinctively a bull but not a perma-bull, the Maven has always hated the treacherous footing a trader gets when establishing any kind of short position. VXX, while not actually a short position, sort of “plays one on TV” as that old commercial used to claim in another context. The VIX is essentially a volatility measure, or a measure of just how treacherous the market is getting on a given day, and like a bowling score, the higher the more volatile—and better if you are a bear.
That’s because the VIX tends to get really volatile when stocks are tanking and investors are bailing, which is precisely what has been going on at a trickle for weeks but is now becoming a raging torrent of selling.
We worked a little bit of our traditional hedge, the short S&P 500 ETF (SH) earlier. But we removed it for a slight profit in favor of VXX, simply because SH is a rather poky beast and we expected something nastier than usual, which we got today. And VXX seems geared to protect positions better than SH or even the double-short S&P 500 ETF (SDS).
We really hate this, particularly when we’re protecting a position that’s probably a little too big to protect. But we’re trying to hold onto our outsized dividends without suffering too much capital loss. We’ll see how this one goes. We’re down right now, collectively, but not too bad, just 0.25 percent for the year at this point on all portfolios.
As I used to teach in my investing classes back in the 1980s, it’s pretty easy to make money in a bull market. When the bulls are feeling particularly frisky, you can often throw darts at a stock table, buy whatever stocks the darts hit, and watch them go up. Simple, easy. But we haven’t seen a bull like this in 2015.
On the other hand, in a bear market or during a bear move (at the moment, we’re not quite sure which beast we’re looking at), the object is to lose as little money as possible. And you will lose in a move like today’s if you remain invested in anything. Yet it’s usually better from a long-term perspective to rarely if ever withdraw completely from holding stocks.
In the long run, if you make lots of money in bull markets and only lose a few bucks in bear markets, you’ll be way ahead of the pack. That’s what the Maven has always tried to do.
It’s just that this time, the Maven didn’t move quite fast enough to put on the VXX hedge, so we’ll just need to see on Wednesday if we need to acquire more.
That’s because today’s extreme negativity probably puts us at or near a good bounce point, stock-wise, even if it’s only a dead cat bounce. So caution is the watchword.
We did actually pick up a little more Calumet today. These sneaky oil-refining bastards slipped a secondary stock offering over on us yesterday without warning. With all those new shares hitting the market on a bad day, the stock opened lower than the offering price ($26.75) and ended the day off a whopping 11.3 percent from yesterday’s close, ending at $24.70 per share. So we decided to suck it up and take down a few more shares at close to that bargain basement price.
The reason? While we’re grumbling about that surprise offer today, such stock offerings are standard procedure in MLPs like Calumet, which is a specialty refiner that doesn’t limit its output to just gasoline. It’s also a major asphalt producer. If you check out your roads as spring creeps back in to thaw, crack, and pothole them, you’ll soon understand that Calumet will be peddling a lot of asphalt this spring and summer.
While we hate CLMT today for screwing us with those new shares, there are mitigating factors. And besides, we’ve made money on this one consistently over the years.
The stock has a hugely high and likely safe yield of nearly 10 percent as of Tuesday afternoon’s close, so the Maven averaged down, even though he might regret it if the per barrel price of oil goes to, say, $20 bbl. for WTI as some pundits are gleefully predicting. The Maven doesn’t think it will get close. But he is also not the Oracle at Delphi, and fears the curse of hubris even more than he fears a leaky roof. Both can cause a lot of damage.
As for now, there’s only one prudent course of action. The Maven is going to post this article and then adjourn to his liquor cabinet to polish off what’s left of a bottle of single-malt Irish. (Yes, there is such a thing.)
On days like this, putting one or two stiff ones back is the very best and most effective investment philosophy. Only problem is, with his pupils still dilated, the Maven might not quite know when he’s had too much.