Monday, February 24, 2020

Brief note on this morning's action, and on our core mix...

Not much to add here to recent messaging; so I'll just reiterate that a day like today (still very early) should come as zero surprise to anyone. And I don't say that because of the coronavirus necessarily, but because days like today are natural, necessary occurrences, particularly if/when we're in the latter stages of a long bull market.

The emergency broadcast system is of course trying valiantly to stem this morning's tide. It solicited the great oracle Warren Buffett who -- in contrast to what his long-time partner said the other day, "lots of trouble coming" -- was on the air this morning promoting U.S. stocks, Apple (his top holding) in particular, although he did say the selloff is a good thing because he's "a net buyer of stocks" and of course it's better when you buy em cheaper. 

Well, as we continue to express herein, while the future is unknowable, our view of where we sit in the cycle, general conditions, and overall leverage in the system says stocks could justifiably get a lot cheaper from here (not a prediction, mind you).

As for today's impact on our core allocation; as I type the Dow's off 905 points (3.13%), the S&P 500 is down 2.98% and the Nasdaq is suffering a 3.51% hit. Our (fully allocated) core allocation is down 1.32%. I.e., not breaking even as it did during last Friday's selloff.

Positions in the green:

S&P 500 Put Option
GLD (gold)
SJB (short (inverse) junk bonds)
FXY (Japanese Yen)
FXE (Euro)

VZ (Verizon)

FXB (British Pound) is trading just slightly lower. Our defensive sector exposures (utilities, REITs and staples in particular), while lower on the morning, are capturing less than half of the broader market decline. The tech sector and our foreign equity exposures are taking the brunt of the selloff so far.

Of course, and I can't emphasize this enough, one day never a trend makes! And the above positions (gld, fxb, fxe, fxy and sjb in particular) do not always go up -- or stay flat -- when the market goes down, or go down when the market goes up. We own each for different reasons, but one thing they each have in common is that they possess relatively low correlation to stocks. Which is what we want given the current environment!

Note, if you check your stuff on line and your portfolio's move this morning isn't quite consistent with the above reference to our core mix (give or take, depending on when you look and what happens between now and then), it's because due to tax constraints specific to your situation when we rotated, you're not quite there, or your (or, say, your kids' or grandkids') portfolio isn't large enough to capture every position. We manage modified allocations for those smaller accounts...

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