WASHINGTON, April 27, 2015 – Until recently, Fridays and Mondays used to be pretty gloomy down days for Wall Street stocks. But not lately. Friday trading ended with reasonably decent numbers, and Monday morning’s trading action has a similar look, at least so far. As of approximately 10:40 EDT, the Dow Jones 30 Industrials (DJI) are up 60+ points, with the broader-based S&P 500 and the tech-heavy NASDAQ up 5.34 and 19.85 points respectively.
Meanwhile, the VIX, the widely accepted measure of stock market volatility—i.e., how violently stocks are swinging both up and down—is sitting at a tepid 12 or so, indicating that traders, at least this week, have few if any cares in the world.
All of this reminds us of today’s trading metaphor, George of the Jungle. Originally created as a short-lived 1967 cartoon character and TV series by “Rocky and Bullwinkle” creator Jay Ward and sidekick Bill Scott as a spoof on Edgar Rice Burroughs’ popular Tarzan of the Jungle books (later made into popular adventure films), George later showed up in a 1997 Disney studio film. He popped up again in a direct-to-disk flick (2003), and reappeared once again in animation in 2007.
Notable for its eponymous hero’s overall silliness, lack of brainpower and uncanny ability to smack face-first into large trees when swinging from vine to vine, the various iterations of “George” were not particularly distinctive.
The Maven still vividly recalls one particular scene from the Jay Ward cartoon series. Menaced by a nasty-looking giant gorilla, George proudly proclaimed to the camera in true Johnny Weissmuller dialect, “George not know meaning of fear…” Whereupon the gorilla commenced to pound George halfway into the ground like a tent stake, prompting George to observe, “but George could learn.”
It’s this character and this pithy passage that’s been bugging the Maven over the past few weeks of relatively patternless trading on Wall Street.
If the Fed doesn’t start raising interest rates, ISIS and Putin play nice, oil and gas prices remain totally stable, the Greeks choose to obey European Central Bank (ECB) dictates to the letter, and the Supreme Court decides (in June) that President Obama can continue to ad lib Obamacare (ACA) rules and regs as long as Democrats benefit, the VIX is likely to remain low, stocks are likely to remain flat to modestly up.
These very big “ifs” seem to be distant possibilities for traders right now, meaning that, like George, “Traders not know meaning of fear.” But should any one of these aforementioned swords of Damocles suddenly drop from the sky, traders could learn the meaning of fear, big time and in milliseconds.
And that’s what has the Maven worried. An about-face on any of the issues we’ve just noted, or, worse, something terrible that’s entirely unforeseen, could slap the market’s current complacency right off its smug, collective face, leading to a selling panic that may actually be long overdue.
For that reason, the bulk of the Maven’s rather reduced portfolio is currently invested in commission-free, low management fee ETFs in positive areas at the moment. Unlike individual stocks, broader-based ETFs tend to move more slowly up or down than the averages or individual. (Leveraged issues, of course, are exceptions to the rule.) Otherwise, the Maven’s portfolios are now between 30-45 percent in cash.
Today’s Trading Tips
As per our observations above, our current ETF holding tends to reflect our somewhat nervous point of view. In a macro sense, the Obama administration has, in eight short years, succeeded entirely in its aim to “fundamentally transform America.”
Aside from the numerous issues already raised by this radical disconnect from traditional American policies, one major result of this “transformation” is an obviously and intentionally weakened United States.
Unlike the America experienced by Baby Boomers throughout their lifetimes—when they lived in a country that could dominate the world’s political and economic theaters—Obama’s U.S. is rapidly approaching a time when its importance and influence is more on a par with rotted out countries like Venezuela.
Less in control of its destiny than it was even in its early years as an independent country, today’s United States and as its financial markets are no longer as robust and defensible as we customarily think they are. Underpinned by hundreds of billions of phony dollars printed by the U.S. Treasury and handed out to banks and rich political supporters to prop up markets, this massive financial shell game in stocks and bonds can and must change. But when it finally does, neither the U.S. nor its severely weakened European allies will be able to do very much about it.
Hence, our rather cosmic seriousness at this point in spring 2015. We’re not nervous enough to be entirely out of the market while loading up on gold or silver instead as some tell us we must. But we are sufficiently worried that American traders—and most certainly, the administration’s water carriers in the network and financial media—are not paying enough attention to the thin ice upon which today’s markets are treading,
global warming climate change concerns notwithstanding.
Hence, we favor staying in the market to some degree while protecting ourselves by hiding in representative ETFs that may offer a little more downside protection than individual stocks.
A good representative holding, depending on which brokerage you’re working with, might be in one or more ETFs that represent the broad market (like Schwab’s SCHB and SCHX), one or two “growth” ETFs (like Schwab’s SCHG), and, perhaps, a broadly based emerging market ETF (like Schwab’s SCHE).
We’re not pitching Schwab here, BTW—it’s just that the Maven trades through this firm and its representative ETFs are available without commission. You may have a similar situation (but different ETFs) with your brokerage.
We do continue to hold a few individual stock positions, such as midstream and downstream oil industry players like Calumet (CLMT) and Kinder Morgan (KMI), while taking occasional advantage of decent looking IPOs, like the recent IPO of Party City Holdings (PRTY).
We also hold a batch of preferred stocks we bought at good discounts, many of which will be “called” (redeemed) not too many years hence at a profit for us. But it’s hard to get more aggressive in this market.
When everyone is as nervous as the Maven is right now, stocks actually tend to move up, “climbing a wall of worry” as the old adage goes.
But when nobody seems nervous at all, save for the relatively few quiet professionals who’ve been exiting stocks without saying so since January, that’s a negative sign to the Maven, who firmly believes that “everybody” is always wrong.
Happy and safe investing to all. And we’ll see you again tomorrow for another reading of the tea leaves at the bottom of 2015’s very murky cup.