Today was a pretty good day before the markets opened.
We were all getting used to 'higher for longer' interest rates by the Fed. Housing prices are rising, but so are mortgages, so as we expect housing sales fall. This creates a little drag in the economy. It also hurts income for the Pickup Truck Professional that works in construction, home improvement and related fields. Current Events: The war over Taipei has not started yet, but the People's Republic of China did send a few aircraft and ships to blockade it, so there was some tension there. The Ukraine vs. Russia war is not escalating, but Ukraine is losing. So, that isn't very good news. Israel and the proxies of Iran continue to fight, but that seems to have simmered down to a war of attrition. Politics are as usual. The news is fairly boring, and in fact I made it through about four new applications without a single 'oh no' or 'oh boy.' The news from last night was that Nvidia was continuing to grow earnings because people want to buy their products. That seemed bullish. We are still back to what the Federal Reserve Bank will do, but it seems they will keep interest rates between 5% and 6% for the next year or so, and continue to unwind their balance sheet every month. So, what happened? We are not sure. We did not hedge our one position that has somewhat liquid options, and we are upset about that because we have wasted the chance to cover about a 15% loss over the past week on one position. Hindsight is always 20/20, but I think we may be more aggressive in hedging. Need to remember that the hedge is not a martingale (in disguise). It is supposed to pay when the underlying stock goes the other way than what we want. Last time we did a huge martingale and lost (or spent) the option premium as we waited. There are economic cycles at play here that nobody seems to be talking about, except manufacturing and retailer CEOs. Economic activity in terms of buying things at the retail level is slowing down. We could blame Amazon and eBay for taking all that business, but I am not sure this is a zero sum game. I think retail activity is down. Well, let's see what tomorrow brings. If the market continues to fall, the high BETA stocks will fall faster than the low BETA stocks. For more information about BETA, please visit our negative BETA webpage here and our large and small stock BETA website here.
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Stock Market BLOGJeffrey CohenPresident and Investment Advisor Representative Archives
January 2025
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