Trade

Terms of the Trade

By David Stockman  |  December 19, 2019

“With each passing day,” I write in this month’s issue of The Stockman Letter, “Wall Street becomes an ever-greater menace. It embodies an ultra-fragile Super Bubble at the mercy of the out-and-out lunatics who dominate all levers of power in the Imperial City.”

Conditions up and down the Acela Corridor can only be described as surreal. What nobody seems to understand is that Imperial Washington is “a clear and present danger” to the biggest bubble in history.

But all this turmoil is why we brought Michael Coolbaugh on board. Michael’s here to help us navigate the “easy money forever” environment Federal Reserve Chair Jerome Powell established last summer.

Together, we’re building a “shock-proof” portfolio on fact-based, “statistically correct” evidence. We’re not just scraping for mere nickels and dimes in the face of 30% to 50% downside. We have a strategy, and we’re executing it.

And, in January, Michael will debut a higher-frequency trading advisory; stay tuned for more information about Delta Profit Trader in the next couple weeks.

Meanwhile, here he is with more compelling commentary on what’s happening in the financial markets…

As Many Fools as Possible

By Michael Coolbaugh

OK, I have something to confess.

When it comes to investing, I change my mind A LOT. To some, this might seem like a crippling case of indecision.

But, in all honesty, I view it as a positive. In fact, one of my investing idols, Stanley Druckenmiller, is notorious for changing his mind at the drop of a dime. (Click here for a recent interview he conducted with Bloomberg.)

Part of this constant questioning of my own views is derived from my experience and training in the markets. But I also think there is something at my core that has helped to shape my approach to markets as well.

I’m a very competitive person. A lot of my earliest childhood memories are of playing sports, and I continued playing all the way through college. Sure, sports are generally fun. But a significant portion of my passion came from the process of experiencing, studying, and adapting.

In basketball, when the defense shifts to a 2-3 zone, the offense typically adapts and runs some version of the 1-3-1, otherwise known as your standard zone offense. In football, when the defense blitzes, the receivers typically adjust their routes to run a short pattern and quickly get open for their quarterback.

This is the “chess match” so often referenced by color-commentators. When you’ve studied your opponent and their tendencies, you know what to expect. And, when you see one of the subtle clues you’ve identified through film study, you know how to adapt.

So, naturally, one of my favorite quotes hanging high above my office desk comes courtesy of John Maynard Keynes: “When the facts change, I change my mind. What do you do, sir?”

You see, in the business of investing, things are always changing. And, unfortunately, one of the gravest mistakes many investors make is to hold on to one’s incorrect beliefs for far too long. I should know: I’m no different, and I’ve gone through that painful experience myself.

Now, I’ve very clearly expressed my concerns with long-term prospects and the damage being done by reckless policy after reckless policy. And, just like Stan says in his recent interview, we should all be aware of the long-term factors and issues. But, as investors and traders, our job is to figure out the path we take to get there.

So, when I say that my view on risk assets started to improve around mid-October, you might be able to appreciate rationale behind this change of heart. Much of this was due to various indicators and models I use through my investment research firm, Element Macro Research LLC.

And, in reality, most of it was likely influenced by the actions from the world’s monetary central planners.

Then, last week, we hit the crescendo. In Thursday’s edition, I posited that the Federal Reserve had begun laying the groundwork to launch a fourth round of “quantitative easing,” or “QE4.”

And, less than 24 hours later and in no uncertain fashion, the Fed announced a standing repo facility of a HALF-TRILLION DOLLARS through early 2020.

Shortly thereafter, the United States and China appeared to finally reach the long-touted “phase one” trade agreement and Brexit negotiations appeared to be heading in a more positive and amicable direction.

The sky was blue…

Last Wednesday, I even posted this statement on social media: “Feels to me that the risk into year-end might be a face-ripping rally… A lot of people predicting a short-term pullback and chaos into year-end due to report market, trade tariffs, etc. Market enjoys making people look silly – if this move in DXY is real, look out!”

And, sure enough, the market took off to the upside.

But come the morning of Monday, December 16, there I was, changing my mind, again, issuing the following update in a research report…

Why the sudden change of heart? Well, the facts changed…

Risks had been removed, everyone started to celebrate in the newfound euphoria, and, then, suddenly, the market seemed to stall. If the market stops going up on good news, it’s generally a sign that buyers may be experiencing some exhaustion.

On top of all that, the list of technical indicators that suggest we should exercise caution over the next several weeks, continues to grow.

And, as I highlighted in a note to clients earlier today, we’d be remiss if we didn’t call upon the quote from legendary speculator Bernard Baruch when he famously stated, “The main purpose of the stock market is to make fools of as many men as possible.”

Have a wonderful holiday season. I’ll be back with my next market update in 2020.

Stability, Now!

This is the most politicized market in history. And the Tweeter-in-Chief is still in charge. So, the situation is changing almost by the minute.

It’s “Impeachment!” in Imperial Washington and all over the Mainstream Media. It’s “Easy Money!” on Wall Street and across Bubblevision.

And it seems as if the whole world has, indeed, gone mad.

Amid this chaos, prices will continue to rise and fall, trends will continue to develop and dissipate.

Well, The Stockman Letter is made for times like these. And we’ve updated our design to help us better navigate to not only the safest harbors but also the most promising opportunities.

The stakes are as high as they can be heading into 2020. Markets appear to be straining, catching up to an economy that’s been weak and getting weaker for years.

The Donald is tied up in the day-to-day movements of the major stock indexes like no president before him. The increasingly desperate incumbent will do anything he must to hold the White House.

It’s a major tipping point. And there’s no telling what the Donald’s great disruptions could do to your wealth.

You’ve got to be nimble to win in this market…

To common sense.

 

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR