Front Running the Recession

S&P is down 40 today after being down 30 on Friday. Is it impeachment? Is it Coronavirus? I think it may be the start of the next recession independent of the headlines. I’m trading with a system that predicts this Friday’s GDP to be 0.06% growth instead of the consensus predicted 2.00% That a 194 bp miss and barely positive. Earnings are being reported and with 30% of the reports reported earnings are negative. Job growth has peaked. The yield curve went negative last summer. Buffet is sitting on the biggest cash horde of his lifetime because EVERYTHING Equities and Bonds are way too expensive and if Buffet knows anything it’s buy low. It ain’t low so he ain’t buying. I read a report that said family offices are now holding more cash than ever. The market is cruising at 120% of the long term mean, implying a 60% drop to revert to the long term mean

I’ve been slowly rearranging my portfolio to be less concentrated in equities. BTC is up $2000 (23%) in a month. EDV (zero coup long term bonds) are up 7% ytd. Gold is up 3.3%.

My birthday is Jan 31. Is my birthday present going to be a 2% economy or a .06% economy? I decided to further hedge. I sold some equities like QQQ, and MTUM and bought more BRK.B. Buffet will buy low when stocks are low, so I’ll let him work his magic and I’ll sit back and reap part of his profit. I also bailed on some of my commodities trades while they were still black. The market is down 1.34% for the day, my trading account is up + 0.5% for the day. Homey likes going up when everything else is going down.

I may be wrong. Time will tell. T -3 days and counting. Falling less on a relative rate of change basis is the same as making more in the long run. An equity swap is not the same as market timing. The correlation between QQQ and BRK.B is 0.16% So swapping BRK.B for QQQ is like buying into a non correlated asset class.

I made the changes with the advice of my AUM adviser Phil DeMuth. His years of experience holds down my volatility.

https://app.hedgeye.com/insights/80675-if-stocks-are-ridiculously-cheap-why-isn-t-warren-buffett-buying

4 Replies to “Front Running the Recession”

  1. I picked up some more BRK.B recently too, from the same line of thinking. Also long BTC and gold. Time will tell but I think you’re right.

    1. Hi ED

      It’s Wiley Coyote, the cliff is there, until it isn’t. The fall isn’t what kills you, it’s the all at once permanent dissipation of energy with the sudden stop.

    1. I haven’t worn a tie in 30 years. I live in FL. I just put on my really nice Izod and the white shoes. BRK.B for QQQ is a lateral risk reducing move. The point is to skate to where the puck will be, not to where the puck already is.

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