Twitter Bombs

Posted on Sunday, May 12th, 2019

Last week we suggested an investor emotion check after starting 2019 in a straight line higher. Are we giddy given the gains so far in 2019? Well, last week turned out to be a gut check. Markets having reached the old highs are now sputtering on China Trade Wars. If it wasn’t the China Trade War it would have been something else. These old highs are proving difficult to overcome. The good news is that the market has spent almost 18 months since we hit the 2666 level on the S&P. Markets can relieve overbought measures in one of two ways – the can go down or sideways long enough to attain more realistic valuations. Every month we get closer and closer to option #2 and every month that goes by softens the veracity and depth of option #1.

IPO’s are all the rage and that should have your attention. When those in the know – Venture Capital owners of these privately held companies- begin to sell check your wallet. 80% of the IPO’s in 2018 had zero earnings and that is the highest level since the Tech Bubble of 1999-2000.

In the years since the Great Financial Crisis (GFC) investors and regulators have been focused on the big banks and correcting the problems of the last crisis. The next crisis won’t stem from the big banks. It will come from corporate debt. In its semi-annual release of the Financial Stability Report this week, The Fed continued to warn that asset valuations are elevated, risk appetite is high, and they specifically warned about the perils of risky corporate debt. The Fed noted that the companies with the biggest existing debt loads were the ones taking on the riskiest loans and protections for lenders were eroding further. We are steering clear of debt laden companies with large dividends as they may be the first to take the hit.

We suspected that a Trade Deal was at hand and the market would see it as a “sell on the news” event. We were right for the wrong reasons but we will take it. The 50 DMA on the S&P 500 appears to be some sort of Maginot Line and seems to be defended at all costs. That is odd. It is usually the 200 DMA that is the line in the sand. Traders/ investors may begin to walk away as summer approaches. Summer is the beginning of the seasonally weak period for markets – between May and November. The November to May period, historically, has much better returns. After starting 2019 so well I see investors taking some money off of the table and heading for the Hamptons. The Twitter bombs may hit and no one may be there to catch the market – with low volume comes volatility.

I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

 

 

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

 

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.