Speculators Anonymous

A place to talk about speculative investing ideas for the optional Variable Portfolio

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pmward
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Joined: Thu Jan 24, 2019 4:39 pm

Re: Speculators Anonymous

Post by pmward » Tue Feb 25, 2020 2:02 pm

The small cap "canary in the coal mine" I mentioned above did not fail, it got me in and out perfectly. Stocks did indeed rocket up to new highs after this, led initially by small caps. Then small caps got weak once again in advance of the stock market as a whole pulling back. I enjoyed a nice little ride from this, where I was overweight stocks in my VP from September through to late January. So I rode most of the way up on that stock overweight, and went back to normal weighting before the recent plunge.

I did have one wrong trade in here though. With the dollar plunging I initiated an international position as well in my VP as I was one of the people believing in the global reflation narrative, and I saw a good risk/reward in international for a short term play. Unfortunately, the corona virus kind of came raining on that parade. You win some, you lose some. On the whole, I still posted a gain on my reflation/stock overweight trade.

I'm not really sure what I want to do right now with my small speculative VP. Gold and Bonds are both extended. Stocks are just beginning a correction, which I hope hits 20%, as I would be willing to buy that dip believing that the Fed PUT would kick in around there just like it did in Q4 2018. It's difficult to decide what I want to do, and there is just so much uncertainty with this virus threat looming and the Fed putting up hawkish speak. The truth is the market these days is no longer correlated to the economy, it's correlated to liquidity. The Fed is putting up some hawkish speak, stating how they are planning to roll off liquidity injections beginning in April and that the market is wrong in pricing in two 25bp cuts this year. I think we may very well get a position like Q4 2018 where the Fed is stubborn and the market forces them to capitulate. Really, all they have to do to spark another market temper tantrum is to roll off liquidity injections and stand pat on rates. Especially with the U.S. dollar taking off like a rocketship lately, this is my biggest worry. So the TLDR is that I'm not feeling very certain about anything right now. Debating on just rolling these funds into my GB and calling it a day, and optimally I would do so on a ~20% correction in stocks.
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