Hi! Happy New Year!
On our portfolio (given in our scorecard), we had a 52% net gain for 2024! The S&P index
went up only by 24% in 2024 and the S&P for 2023 and 2024 went up by 49%.
Over the last 15 years: 88% of active large-cap funds failed to beat the S&P 500.
Over the first half of 2024: 18.2% of actively managed funds that benchmarked to the
S&P 500 beat the index.
Patting myself on the back!
Since September 2024, the Federal Reserve has been reducing the interest rate (by 75 bps) but
the bond market has increased the rate by 1% so mortgage rates have been climbing. Only once
in history; did this happen-in 1981 when Volker tried to lower rates. The bond market is
worried about inflation and deficits. If bond yields keep rising, investors will sell their stocks to
buy bonds and the stock market would crash as it happened in 1987. However, there is another
school of thought- people are selling bonds now to buy stocks so bond yields are going up. 2025
will be very exciting!
On 12/18/24, the news media was complaining that the market (Dow Jone-DJIA) had its longest
losing streak since 1974 (when Ford occupied the white house) which ended with a 1,000 +
point drop on 12/18/24 after the Federal Reserve decision. I just could not understand the hype.
The DJIA fell from about 43,000 to 42,000 (or so). This is nothing. We did not have a single
10% correction in 2024. That is unhealthy. I always have some put options on the S&P 500
(SPY) as a hedge against a big correction (or crash). On 11/13/24, I bought some puts on the
SPY (expiring June 2025, strike price $400). This was a hedge against a 20% drop in the market
but when the ‘market’ dropped 1,000+ points on 12/18/24, I was able to sell my put options
with a 55.3% gain! Traders are investors are getting unreasonable and expecting the market to
drop soon. Nvidia is the star of the market. A few weeks ago I started to trim my Nvidia
holdings and I put in a little bit of money in to Nvidia put options as a hedge. The puts I bought
expire on 1/15/2027, with a strike price of $50- in other words, Nvidia has to fall by 70% for
me to make a profit. I did not expect to make money on this hedge till the end of 2026. By then
Broadcom and others might take some market share from Nvidia. To my amazement, on
12/20/24, my Nvidia puts had a paper gain of 9.26%!
On 12/18/24, The US Federal Reserve decided to cut the interest rate by another 25 bases
points. Soon after the announcement, this what Fed Chair Powell had to say:
Inflation is going down to 2% but the rate has slowed.
Housing inflation is going down but slower than expected.
Expect a slower rate of interest rate cuts in 2025.
The Feds are closer to a “neutral” rate.
The US economy is “very, very” good. It is better than all other countries.
They are in a “new phase”- “meaningful but restrictive”.
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By law, the Fed Reserve cannot own Bitcoins-unless congress changes the law.
It is clear that we avoided a recession.
People are feeling “higher prices” and not “higher inflation”.
They are going to be cautious about more rate cuts.
US economy has not felt the effects of geopolitics.
Long term inflation expectations are well anchored.
Jeffrey Gundlach was formerly the head of the $9.3 billion Total Return Bond Fund, where he
finished in the top 2% of all funds invested in intermediate-term bonds for the 10 years that
ended prior to his departure. He was fired by TCW in 2009. In the aftermath, Gundlach and
TCW sued each other and went to jury trial in California; TCW alleged that Gundlach stole
trade secrets (TCW prevailed, but was awarded $0 for the claim), Gundlach sued over
compensation claims (Gundlach prevailed, and was awarded $66.7 Million). After every Fed
Reserve decision, Mr. Gundlach makes a statement on CNBC and on 12/18/24, this is what he
had to say:
Now more confusion than ever before.
Inflation has not improved since September 2024.
No aggressive rate cuts in 2025. It will be at a slower rate. Very bad for the stock market.
Now the Feds are extremely data dependent.
Inflation will not get to 2% (Fed target) in 2025.
Inflation could go up to 3% in 2025.
Maximum of 2 rate cuts in 2025.
Pause in cuts is coming.
No rate cut in January.
The future is unpredictable.
Trumps proposed policies are inflationary. Rates could go up.
When the feds were cutting rates over the past 3 months, the bond market raised rates up
by 8 base points. Mortgage rates are connected to treasury rates.
Bond yields look good. It is easy to get safe bons with a yield of 7%. Since the Feds are
pausing, bond yields will remain high.
The US dollar has been spiking. Bad for US exports.
We cannot resolve our debt problem by growing the economy. “Arithmetic does not add
up”.
Interest rates on the US debt has gone from $300 Billion to $1.3 Trillion.
30 years ago, Ross Perot was correct about the interest payment problem. (Herbert W
Bush started raising taxes, which was continued by Clinton so during the Clinton years
for the first time since WW2, we had a balanced budget but Gearge W destroyed that
with his massive tax cuts).
Short end treasuries look better than the long end (i.e. 20 yr, 30 yr).
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His advise- Increase your cash position to 30%+. Gold and Bitcoins will do well in the
future but he does not recommend bitcoins.
Rick Rieder, managing director, is BlackRock's chief investment officer of Global Fixed
Income, head of the Fundamental Fixed Income business, head of the Global Allocation
Investment team, a member of BlackRock's Global Operating Committee, and chairman of the
firm-wide BlackRock Investment Council. This is what Mr. Rieder has to say on 12/19/24:
Equity volatility double due to the Fed decision on rate cuts.
Inflation is done coming down.
The probability of Feds hiking rates in 2025 is very high.
Past 12/17/24, all markets looked “bubblish”.
Now it is a little healthy.
3 to 4 year bonds look good.
Due to budget deficits/debt, buy gold and bitcoins; but recent high prices is a warning
sign.
Raymond A. Merriman is the President of The Merriman Market Analyst, Inc. and founder of
the Merriman Market Timing Academy. He is a Commodities Trading Advisor (CTA),
financial market analyst, and editor of the MMA Cycles Report, a monthly market advisory
newsletter that specializes in stocks, interest rates, currencies, precious metals, crude oil and
soybeans since 1982. He also writes a daily and weekly report for more active traders.
Merriman is also well-known as a professional astrologer, having studied the subject since
1967, and receiving his professional certification form AFA (American Federation of
Astrologers) in 1972. Four years ago, when no one suspected, using astrology, Merriman
predicted that Joe Biden will not run for President in 2024 as he would be “disabled or too sick”
to do so. Then he stated that Kamala would have a better chance but even Kamala cannot beat
Trump as this is a very good time astrologically for Trump. That is credibility! On 12/23/24,
Merriman stated, “It’s chaos time. It is Jupiter in Gemini square Saturn in Pisces. Its Mars
retrograde. Next week, it will be Venus square Uranus. As expected, this holiday season is not
likely to be boring. So let’s try to be merry and embrace the excitement of the unexpected and
the chaos and entertainment that comes with it. Think of the next few months as a huge tide
coming in , and then the riptide starts as the waves go back out. In the US, the efforts may be to
drain the swamp but the results may instead seem like a man made tsunami. Here, we have all
the cosmic elements that lead to huge swings in financial markets. I expect we have at least two
stock market reversals exceeding 10%, may be even more than 25% (in one case) It should be
quite exciting! Hold on! Hang tight! The tide is now rising! It is a fine time to learn the
principles of surfing”