On the Other Hand
Posted on Monday, June 20th, 2022
A belated Happy Father’s Day! We hope that your weekend was an enjoyable one. I spent yesterday – first – on the golf course and then later watching golf with Diane and the kids. They are so good to me. My golf partner and I won some money in our weekly Sunday game and I then came home to watch a very exciting US Open on a classically beautiful golf course. If anyone is looking to take me to Brookline MA for some golf at the Country Club the answer is yes.
I spoke to a well-connected source on Wall Street this morning and he noted some meetings this week with some of whom he describes as the best investors in the business. They made it clear to him that they are buyers in this environment. He has given me good insights in the past but he tends to be early. These investors that he spoke of are very large and they need a long runway when it comes time to buy. There appears to be light on the horizon. He also expressed his frustration with his personal financial advisor. All the notes he is getting from his advisor include the phrase “but on the other hand” insinuating that the market could go up but on the other hand it could go down. I can sympathize with that mindset but at some point, you have to take a stand.
We have been clear for months if not years that this was going to be a difficult market. We spoke of inflation 2 years ago. We wrote to you about a looming recession, a bear market and a range bound market 6 months ago. We say this not to be braggadocios but to point out that it is necessary to have an opinion of where markets are headed. That opinion allowed us to sidestep some of the worst impact of recent market moves by avoiding high flying growth stocks and owning oil stocks. We fastidiously study market action as price tends to tell us 90% of what we need to know and it helps anticipate changes in the market. We look for research opinions that hold water and have had some degree of historical success. We also get clues from the media as when these economic and market actions come into the zeitgeist it is time to pivot again. Everyone now accepts that there is a recession on the horizon. This comes 6 months after we let you know. The Fed is raising rates into a slowdown, effectively creating a recession. It is their only weapon to fight inflation. Everyone is aware of this. It’s time to pivot again. This is what comes next. For political cover the Fed will hike until something breaks. It is when central bankers begin to panic that markets stop panicking. My current guess for what is going to break is a currency in Asia. It is quite possible that it will be Japan. If central bankers take it that far it will be an obvious buying opportunity.
The Fed meeting and the June 17th options expiration have both passed. That resets the market. It unlocks the market in either direction. Markets could have large moves in either direction but first we think the rally starts the action. It would be too easy if they just keep pounding this market. The more difficult path for us investors is if the market rallies first. Do we sell the rally? It depends on how high we get. We closed Friday at 3674 on the S&P 500. We are getting close to adding equity positions. We start nibbling from the long side at 3600 but really start to bite in if the market falls below 3333. Seeing tons of emails from brokers trying to get me to put your money into Buffered ETF’s. I will go into more detail in my Quarterly Letter but rest assured it is a sign that Wall Street sees a way to take advantage of anxious investors as markets edge closer to a bottom.
No note next week as we prepare our Quarterly Letter.
“Short term volatility is greatest at turning points and diminishes as a trend becomes established.”– George Soros
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.