Summer of Fun
Posted on Sunday, May 23rd, 2021
Last weekend Diane and I went to Sarasota. What a treat! We just stared at the water for two days. It was good for the soul. Diane knew but I didn’t realize how much I needed to get away and see the beach. It has been a hard go for the last 18 months. Things have been nonstop during the pandemic in the financial world. Aside from the beach we managed to get out to some fantastic restaurants as a friend had given us some great tips about the town. If you head to Sarasota let us know and we will give you some insights. If you are flying be prepared. The parking lots at the airport in Atlanta were full. Yes. Turn around and park somewhere else full. We barely made our flight. The summer of fun has begun.
CNN Fear Greed Index closed at 34 this week. Not Extreme Fear but solidly in Fear nonetheless. I don’t particularly like the market here and I haven’t in weeks. We have been expecting a selloff. As much as we have been expecting a selloff we are expecting a rebound as most are positioned appropriately and are prepared for lower prices. Sentiment in stocks had been stretched. That means that investment managers have been overweight equities and looking for higher prices. Quite a bit has changed in the month of May as sentiment has moved to oversold levels. Contrarians see that as a buy signal. It’s when no one is prepared that we get real selloffs. Investors are prepared. The Reverse REPO does have us nervous. What is that? Just know that it is growing larger and indicating that there is trouble brewing in the banking system. That is when you get real selloffs – when there are Liquidity issues. The Fed may have to announce that they are tapering sooner rather than later and markets are not expecting that. The Fed is getting closer and closer to outright debt monetization which will put pressure on the US Dollar. Our proprietary volatility signal has not raised the red flag yet but the tremors are growing.
Options expiration this past Friday will open up the opportunity for markets to become much more volatile. Just because we say that does not mean that the direction will be down. We are leaning to the opposite in fact. We have seen waves of selloffs in meme stocks like Gamestop, SPAC’s, Tesla and crypto currencies yet the market remains intact. Those selloffs have relieved the market of some of the froth, leverage and over bought conditions. In short the market has become less dangerous. Investors have been quick to pull the plug as we have seen in the more speculative issues. Call positions have declined substantially versus puts which is odd given we are so close to all time highs. It appears that most are hedged for downside protection yet none are positioned for a crash that goes UP. Summer markets are usually quite dull –never short a dull market. If the market starts off quiet next week we will begin to go higher as dealers who are short begin to cover. If something happens over the weekend to scare markets then there is plenty of room to run on the downside. Look both ways.
Price to Book valuations in the US are double that of the UK, Europe, Japan, or Australia. Gold is performing much better and the US Dollar is close to breaking lower again. That is good for gold. Time to get out of US dollar denominated issues? The summer rollercoaster continues. Seasonally we tend to struggle in mid to late May. Take a look at your 401K choices. Most 401K’s that I see have only options for what has worked for the last decade – growth funds. There are no options for value, energy or precious metals.
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
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
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.