Happy Thanksgiving
Posted on Sunday, November 20th, 2022
The kids are home! The Holiday Season has officially started. I drove out to pick up one son this Thursday and Diane picked up the other on Friday. Our daughter surprised us by coming home early on Friday night. All under one roof! It makes it feel like all is right with the world. We just sat by the fireplace and caught up on the latest news for each of them and planned out the coming week. They all went to the movies today while I fixed stuff and Diane cooked stuff.
If you haven’t been following the latest moves in the crypto currency world don’t’ worry, you don’t have to – they are going to make this one a movie. Suffice to say someone stole a lot of money and there is sex, international intrigue and political machinations involved. This is going to make some movie. Why is this important? It shows that the easy money game allowed some shenanigans and worthless investments to survive and thrive. The Fed is breaking stuff like we told you they would. The tighter money policy is having its effect and the tide is going out on speculative assets. This is a good thing and takes us one step closer to a legitimate bottom in asset prices and a better investing climate.
All is, of course, not right with the world but I think the Holidays are going to help fend off most of the trouble. While we are itching to de-risk at these levels and sell more equity holdings the Holidays have a way of keeping Wall Street at bay and let the good times roll. The cap on this market appears to be between 4050 and 4150 on the S&P 500. The options market had a decent sized expiration on Friday and has the potential to become unlocked, but the slow holiday week may encourage traders to hold off a bit. However, December’s expiration is very large and will impact prices. The first week of December should give us some clues. There is not sufficient support in the market at the moment so markets could either move up slowly or down very quickly. The Santa Rally people may keep the party going but if we have any negative news the downside opens up quickly. I am preparing for the downside.
December employment reports should show some degradation of the economy. That would help support markets and the Fed pivot scenario. The pivot, however, may be of concern to traders as we don’t think that they have considered the impact of a slowing economy on profits. That may trigger the group to rethink and hit asset prices. The economy must stumble for the Fed to pivot. The economy stumbles. Then the market stumbles. Then the Fed pivots. I don’t think we get to skip steps here.
The rally this week was again led by the lowest quality and the most hated stocks of 2022. Not the signs of a lasting rally. The thing that will make this rally last is FOMO. Investors are afraid of being left behind and underperforming with a Santa Claus Rally on tap.
We look to de-risk further and perhaps add duration. Bonds could be the better performer in the first half of 2023. The post pandemic shift to headwinds rather than tailwinds are still in place, and we need to be patient and buy cheap. Valuations are still elevated Singles and doubles. Not home runs right now.
Be fearful when others are greedy and greedy when others are fearful. – Warren Buffett
“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.