What’s the Plan?
Posted on Sunday, May 22nd, 2022
My back locked up again this week. Well, at least I thought it was my back. It turns out that my hip flexors are in spasm. I have been walking- well walking isn’t the right word – shuffling around the house every morning. I feel better by the afternoon but the next day I am right back in spasm. Diane told me that I need to go to the doctor. When your wife tells you to go to the doctor you probably need to go to the doctor. The results were typical for me – Living the Life of Reilly. It turns out that I need to get out of the office, get some therapeutic massage and get to the gym. I probably should play golf too! I know when my body starts to break down I am in the office too much. I find myself standing at the computer for 8 hours at a time in the same position. It’s a relief when clients call because I walk around and loosen up a bit – so keep those calls coming. I’m not leaving the office while the market is like this.
What’s the plan?
In several conversations this week I heard the same exact phrase – What’s the plan for this market? Those who fail to plan – Plan to fail. Now is not the time to plan. This is the time to execute the plan. The plan started months ago in the case of stocks but years ago in the case of our bond holdings. Over two years ago we let go most of our longer term bond holdings to decrease duration. That has kept draw downs acceptable. Had we held longer term duration we would have likely seen their downdraft be double or more. Bonds are looking more attractive.
In the case of stocks we took down our exposure in mid to late February when the market was over 10% higher. We have been warning about inflation and have been adding to our core oil and gold holdings since late 2020. They have been the best performers of 2022.
We spent a good deal of time this week trying to be more tax efficient with your portfolios. One very easy to capture return is through being tax efficient. We took tax losses wherever we could and replaced those holdings to maintain our exposure to the market. We will be happy about that when tax time rolls around next year.
You know that we have been of the opinion since January that we are in an 18 month trading range and a bear market. Our options research has been spot on and has helped us navigate through the markets twists and turns. We are still in negative gamma and that works both ways – big moves up AND down. We are now at the bottom end of our suspected trading range. Now what? Stick to the plan. Our range has been 3800-4800. We closed Friday at 3900. We are now 5 months into this bear market. Things are still volatile – especially if we stay below 4000 – which gives us a real chance at a capitulation selloff. We like capitulation selloffs. Like a wise investing friend said this week. “I’m ready to buy. I just hope the market makes it obvious.”
June 17th is the next big date on the calendar. That is the next chance for the market to get a clean slate and move back into positive gamma. We are underweight stocks and are prepared to add stocks at a discount. The market is working off the excessive valuations. Are we there yet? The trading range is the bulk of where trading should take place over the next 13 months. Could it move lower than our 3800 target? Yes and that is where the opportunity lies.
“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.