The Bear Cometh

 

OK, so the market opened way down today. This wasn’t entirely unexpected. As I said in previous posits, we are late in a very old bull market and a correction is overdue. I think there will be more bloodletting before this is over. That said, we generally stuck to our guns. Here’s the way the portfolio started:

Stock         Price       % of portfolio
BNS            39.61        11.3
ENB            32.84        9.3
FNV            46.80        13.3
JNJ              100.08      9.5
LTC            42.81         12.1
SH              21.25         20.2
TLH            135.28       12.8
YORW        24.42        11.5

What we didn’t do was buy BABA, which was last seen dropping like a stone, down 6.8% and testing heavy support. I need try to catch a falling safe. I did buy YORW, which I said I was waiting on. Today looked like a good time to bargain hunt for that utility, since it is off of recent highs.

The only other change is the SH position. If you’ll recall, I wanted to short Tesla and said I was going to wait on that (I’ll explain more below). I decided instead of waiting for a good solid short on Tesla I’d just short the whole market. That’s a safer bet than a single stock, of course, but then I don’t stand to gain as much, either. If you aren’t familiar with shorting, all that means is that I will make money when the market goes down. The SH ETF is simply a vehicle that allows me to do that easily.

The reason SH represents a large position is that I took the undecided money I spoke of last night and put it into that stock instead of keeping it on the sidelines as cash or buying more treasuries.

Now, about Tesla. This is an auto company, which is an industry I have quite a bit of familiarity with. In the best of times, it’s hard to make money in this business. It is capital intensive, cyclical, and buffeted by government regulations and the fickle consumer-plus it is hyper competitive. That is why I, more than anyone, would like to see Elon Musk succeed with an American brand here. The obstacles are so huge, you feel like you’re rooting for the underdog. And by all accounts the vehicles are fantastic (I have never driven one). The last time I saw customer loyalty as fanatic as this was when I talked to a Honda owner.

But the big difference is that Honda makes money, and Tesla doesn’t. In fact, Tesla has never made money selling cars, which means IMO that the stock is magically levitating on the idea that they are the car of the future. Well, there’s a whole lot of those that are now just footnotes in history. Money talks, and Tesla is burning through it with gleeful abandon-yet there the stock is, poised to go to $300-or the moon, to listen to their fan base.

So Telsa is a great contrarian play, made even more so by the fact that I anticipated a market downturn this year anyway. BUT, over last weekend, I saw that one of them burned to a crisp while recharging in Norway or Sweden, I’ve forgotten which, so the bad news was out. In the past when these events occurred, Musk has been able to tut-tut the event as if it meant nothing and the stock eventually recovered. But for a short position, you want to buy when the stock is flying high, and I knew the weekend’s bad news meant the stock would open down today-and I wasn’t disappointed. Last I checked, it was off over 7%. Bad time to short. Better to wait until it recovers.

Instead of doing that, I decided to short the market, which wasn’t down anywhere near as much for obvious reasons. I hope to bag some profits in the SH position and roll that money into TSLA at a more opportune moment-like when another glowing review comes out and the Boy Wonder tells everyone there’s nothing but blue sky ahead.

So this is where we stand right now, with s nice mix of shorts, bonds, defensive stocks, and a couple of bets on energy and the Canadian economy. I do think maybe I should load up on more treasuries, but we’ll leave it alone now that I have my positions as I promised we would try to do. If we see the market turning, we can rebalance later. See you then!

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3 Responses to The Bear Cometh

  1. Lawrence Glickman says:

    When Bull Markets end most analysts are always late to the game as they have become used to the FED bailing them out. Because of the absolute mess that the world is in geo politically and economically this will not be the case this year. A 10-20% drop is in the cards unless the FED reverses course and ceases the rate rises and once again pumps money into the Market. 1. ISM numbers suck 2. Housing numbers suck 3. China is going lower and lies about their situation 4. Valuations are too high. 4. The transports show there is simply no global business activity 5. Algorithmic trading will punish anyone trying to day trade. 6. Debt is hobbling everything and the last FED bond sale was a failure. I warned my Family but nobody listened. Going short is a tough game so I say use options only to define risk long or short this year. If I hear another person saying “I’m going to ride this out like before” I will just walk away rather than asking them to get psychiatric help.

  2. Jonathan says:

    I agree with your analysis. The global economy is teetering on the brink. I am hoping my combination of shorts, bonds, and defensive stocks will weather the storm. My biggest concern is with the Canadian stocks. These are good companies, but in a down market they’ll tank like all the rest.

    • Lawrence Glickman says:

      We all place our bets and take our chances. With that said the talking heads on TV are “talking their book” to keep their investors. I do not believe in trying to out think an overall downtrend. Mohamed El Arian the “smartest guy in the room” is in cash. If you want to gamble you can play reversals to the mean but the Market is going to reprice all stocks and there is no fundamental reason to break these all time high valuations. Look at Amazon or Tesla they may go the way of Go Pro and dip 70% like go pro did when everyone was high on the stock. I’ll wait for the dust to clear. There will be another leg down after they suck in the next group with a mild rally.

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