March 7 Post
Hi Again,
During February 2023, S&P500 declined by 2.6% and the Dow declined by 4.2%;
however, our portfolio gained by 0.79%.
The stock market has been range bound for more than a year. The Federal Reserve
keeps saying that they will maintain higher interest rates “higher for longer”; but
bond market gurus believe that the Feds will pivot in 2023 and lower rates by year
end. It does not matter what happens, we should look for opportunities and pounce
on them when we see them. On 2/21/23, Josh Brown stated that following computer
driven algorithms is very risky as those computers are programmed to follow the
trends of the past few days. I agree with that statement. Recently the bond market
has been acting prudently and increasing rates in line with the guidelines given be
the Federal Reserve. Interest rates as well as inflation is rising in the US as well as
in Europe – Look at US Treasuries as well German bonds. No one know if this
trend will continue. To take advantage of interest rate changes, I trade the ETF
known as TLT ( iShares 20+ Year Treasury Bond ETF ). I have made some good
money by “buying put options” to short-sell TLT. If you look at the 6 month chart
of TLT, you will notice a triple top (12/7/22, 1/18/23 and 2/2/23) which could lead
to lower prices in the future. On 12/7/22, TLT was at $109.47 and on 3/2/23 it was
at $99.39.
Most people recognize Jamie Diamon as the most respected bank CEO (Chase).
CEO Jamie Dimon said Thursday that containing inflation remains a work in
progress for the Federal Reserve, while noting the U.S. economy continues to show
signs of strength. “I have all the respect for [Fed Chair Jerome] Powell, but the fact
is we lost a little bit of control of inflation,” Dimon said in an interview with
CNBC’s Jim Cramer during the “Halftime Report.” It’s the first of a two-part
interview with Cramer, with the second installment airing later Thursday on “Mad
Money.” Dimon’s comments came one day after the Fed released the minutes from
its Jan. 31-Feb.1 meeting, which showed members remain resolved to fight
persistent inflation. “Participants noted that inflation data received over the past
three months showed a welcome reduction in the monthly pace of price increases
but stressed that substantially more evidence of progress across a broader range of
prices would be required to be confident that inflation was on a sustained downward
path,” the minutes said. Dimon himself said he expects that interest rates could
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“possibly” remain higher for longer, as it may take the central bank “a while” to get
to its goal of 2% inflation. “The U.S. economy right now is doing quite well.
Consumers have a lot of money. They’re spending it. Jobs are plentiful,” Dimon
said. “That’s today. Out in front of us, there’s some scary stuff. You and I know
there’s always uncertainty. That’s a normal thing.” Those comments contrast with
Dimon’s previous remarks in October. At that time, he said the U.S. economy will
likely fall into a recession in six to nine months. In December, he said higher
inflation was eroding consumer wealth, which would lead into a recession this year.
We can always learn from our past mistakes or “missed opportunities”. In the
future, we can make use of those lessons to better ourselves and make money. All
the best Wall Street Wizards will testify that it is a never-ending process. We must
always keep 25% to 50% of our portfolio in cash to make use of such opportunities.
The biggest missed opportunity for me was not to short sell the over-valued stocks
that had a big debt to equity ratio while and incurring losses year after year. When
the Feds started increasing interest rates, these companies had no choice but
increase their interest payments to survive. With a potential recession, having a
detrimental impact on their revenue, it was a double whammy. Take Carnival
cruises (CCL) for example, it was at $19 on 4/11/22 and on 3/2/23, it is at $10.70.
DocuSign (DOCU) was at $310 on 8/29/21 and on 3/2/23, it is at $61.03. At the
money put option is around $1 ($100=1 contract). Let us assume I bought $1,000
worth at the money puts on DOCU on 8/29/21, today my puts will be worth
$250,000!
In my last newsletter, I mentioned that I gained a lot by investing/trading in to
“good” stocks that fell about 50%- for example, Tesla, AMD, Netflix,
Facebook/Meta. At this time I am closely watching Disney (DIS). On my personal
account, I bought DIS when it went down to $85. On 2/2/23, DIS was at $112. On
3/1/23, it fell to $98. I keep experimenting with strategies. At times, I buy 1 share
and when it goes down another 10%, I buy 2 more shares and keep doing that till
the price hits a temporary bottom. This works! Market gurus say that when the
market or a stock, bottoms, no one will ring a bell; but we can create our own bells
in this manner.