Philstockworld Mid-Year Portfolio Review (Members Only)

Image result for one million dollars animated gif$2.1 MILLION Dollars!

$2,093,568 to be exact in our primary portfolios, the paired Long-Term Portrfolio (LTP) and the Short-Term Portfolio (STP) whose job is to protect it.  It's really nothing to crow about as we're actually DOWN $40,487 since our June Review (through mid-May) though these numbers are only through mid June and the month finished with quite a bang.  We close our months on option expiration day, of course, so we won't really know how the first half went until after July 19th and, by the time I consolidate that into a review it will be August and it would sound silly to call that a mid-year review – so that's why I'm calling this one a mid-year review.

While semantics are fun, let's get back to talking about trading strategies:  Our intention over the summer was to lock down our portfolios in neutral as $2.1M is up from our Jan, 2018 start with $500,000 in our LTP and $100,000 in the STP so, overall, we're up $1.5M (250%) in 18 months and, with China Trade still up in the air, I'd rather protect my $1.5M in gains than risk them trying to make another $150,000 (10%).  That's one of the problems you have as you make more and more money – you spend a lot more time protecting your wealth, rather than concentrating on making more wealth.

That's why we like to have multiple virtual portfolios at PSW.  The LTP/STP is where we keep the bulk of our investing capital and they follow a strategy that is constantly hedging to protect what we started with.  Nonetheless, they can still make spectacular gains but this cycle we have a very odd situation in which we have usually guessed correctly when we have added and removed hedges in the STP, causing an unusual $600,000 gain in a portfolio that usually loses money while the LTP gains.  

It's been a very unusual market with lots of dips and recoveries and that kind of suits our trading style perfectly as we tend to scale into positions, buying small, conservative spreads to begin and adding more and widening the spread on dips.  Another strategy we use is rolling our profits and the leads to a lot of our big gains.  For…
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Why Bother Wednesday? Low Volumes Ahead of the Holiday

July 4th Week ProductivityThere's not much going on this week.

It's only a holiday for the US tomorrow but so may people take vacations this week and the people not on vacation are planning parties and such and no one is in the mood to work – so very little goes on.  Even as I go through the news I find a lot fewer articles being published – writers take time off as well.  So no one is making news and no one is reporting news and Trump is distracted by his parade – let's just sit back and enjoy the quiet...

I didn't find a chart for a Thursday July 4th but that's probably just a flatline into the weekend – this is usually the week I take my family on vacation but my girls are getting older and have plans with friends and we'll do a family thing next month (when it's less convenient for me).  Anyone who's been a boss knows this week is second only to Christmas in not getting anything accomplished but there is a Non-Farm Payroll Report on Friday, for some reason, so we can't completely ignore the markets.  

The Futures are up a bit this morning as Europe has nominated the IMF's Christine Lagarde to replace Draghi at the ECB.  I don't think Lagarde is going to be quite the dove they think she will be as she's been quick to lend money to struggling nations but does not sit on the lap of Goldman Sachs, as Draghi did (his previous employer).  A truly independend ECB would be a great thing – but not so much for the markets.  

Meanwhile, my theme of the week is gathering steam as now 82% of the companies pre-announcing earnings revisions are guiding down and Analysts have now downgraded the most stocks since June of 2017, though that's not really something to worry about since 2017 was a great year where we barely dipped.  It's the fact that we're getting worse and worse that should be a concern, not the comparison.

In June, 116 more companies had their earnings forecasts cut by analysts than raises – that's 20% of the S&P 500.  “There is some sagging in
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Testy Tuesday – Can We Hold onto the New Highs?

2,982.  

That's where the S&P 500 crested yesterday and now we're back to 2,965 this morning after falling to 2,855 yesterday afternoon.  We're so close to 3,000 that is makes no sense at all to be bullish into the holiday weekend as S&P 3,000 is going to be a tough line to cross as it's up 2,334 points (350%) from the March 2nd, 2009 low of 666.  

Clearly companies are not making 350% more money than they did in 2009 but that's a false benchmark because the stocks were clearly UNDERvalued at the time and 666 was stupidly cheap for the S&P 500 but S&P 3,000 is still going to cause people to question valuations and, as I noted in yesterday's Report, Corporate Profits are very unlikely to justify these record highs and we begin to see those results on July 15th, as Q2 earnings begin coming in volume. 

The run to 3,000 has come off our most recent consolidation at 2,400 and before that 2,000 and there's nothing wrong with moving up 20% (400 points) between 2015 and mid-2017 – that's pretty normal for 2.5 years but, just 2 years after that, we're up 600 more points and that's probably a bit much.  We WERE having healthy consolidation around the 2,800 mark in 2018, when S&P 500 companies combined for $134.95 per share, giving the S&P 500 a Price/Earnings Ratio of 17.78 at 2,400.  For Q1 of this year, we are pacing at $135.73, just a 0.5% improvement but, as we close in on 3,000 on the S&P, that's up 25% – and the P/E Multiple at 3,000 is 22.10 and that's up 24.3% – see the pattern?  

I know it may not seem like it when you have a runaway market and it's easy to say that Fundamentals don't matter but they do to the people who aren't trading every day.  The silent majority of traders are the buy and hold fund managers who hold 

 

IN PROGRESS

 

 

Monday Market Movement – Trade Talks Back on with China!

The Dow is up 250 points pre-market.

That's after bursting over 100 points higher in the last 30 minutes of Friday's session.  Overall, it's a very low-volume rally, mostly short covering (we will be covering some shorts ourselves) as Trump met with Xi at the G20 and he decided Huawei isn't spying on us after all (despite slandering them all over the world) and that Trump will not put tariffs on another $300Bn worth of Chinese goods but he is keeping the tariffs already in place.  Keep in mind this is all to arrive at an eventual deal that is not likely to be substantially different than the deal he broke last year – so why all the celebration?

As you can see from the chart above, earnings haven't grown at all this year and it's been Valuation Expansion or Multiple Expansion that's accouted for 90% of the move in the S&P 500 for the first 6 months.  Very simply, we are paying much more for the same earnings as last year.  Granted a lot of companies did us "China" to excuse their shortfalls and we can imagine, with the Trade War hopefully winding down, that we'll get some real growth but that doesn't mean we're not paying too much for the growth we do get.

Notice that 87 S&P 500 companies have already pre-announced negative guidance for Q2 and, when we get back from the Holiday weekend next Monday, we'll begin to see those Q2 earnings reports.  So, while we hedged heavily into the weekend – just in case the G20 went badly – we will be using those hedges into Q2 earnings season, albeit less aggressively as we sell some covers as well.

We know the Fed is certainly in no hurry to raise rates, so that's a big plus for the market but I'm not so sure the Fed is looking to lower rates as we are no in the 121st month of a market expansion – the longest in history (and 104 (86%) months of it came before Trump was President – in case you are wondering).

Nonetheless, Economists surveyed by Bloomberg see a 30% chance of recession over the next 12 months and growth…
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