Wednesday, March 31, 2021

Morning Note: "What I believe in is compounding and not losing money"

There's the anticipation of big news today from Washington on big infrastructure. While it would be the definition of ridiculous, and utterly reckless, to suggest that a massive amount of deficit spending is long overdue, one could argue that a significant infrastructure spend has indeed been a long time coming -- or, let's say, it's been a long time anticipating...

Hence, clients, our U.S. equity exposure is tilted toward materials and industrials, as well as toward the areas that will be the direct beneficiaries of tax incentives (13% of our target U.S. exposure is divided among the producers of solar energy, wind energy, lithium, rare earth minerals, uranium and water) -- while the rest of corporate America has tax increases to look forward to. The latter will be touched on today as well. 

As for direct exposure to related commodities, we're capturing the industrial metals via DBB, and silver, individually, via SLV.

Asian equities (our heaviest non-US exposure) struggled overnight, with 14 of the 16 markets we track closing lower.

Europe's leaning red this morning as well. 3 of the 19 bourses we follow are closed for the day, while 10 of the remaining 16 are trading lower as I type.

U.S. major averages are bucking the global trend to start the session: Dow up 74 points (0.24%), SP500 up 0.43%, SP500 Equal Weight up 0.32%, Nasdaq 100 up 0.85%, Russell 2000 up 0.95%.

The VIX (SP500 implied volatility) is down 2.40%. VXN is down 1.06%.

Oil futures are down 0.05%, gold's up 0.55%, silver's up 0.34%, copper futures are up 0.48% and the ag complex is down 0.15%.

The 10-year treasury is up (yield down) and the dollar is down 0.11%.

Led by metals miners, wind producers, solar producers, tech and gold miners -- but dragged by MP (rare earths), AT&T, uranium miners, Asia Pac equities and Verizon, our core mix is essentially flat (+0.05%) to start the day.

Today. much like Monday and Tuesday, looks a bit messy thus far. I.e., while the U.S. averages are higher, consumer staples, materials, banks, financials and energy are all trading lower as I type...

A conversation with a friend yesterday prompted me to pull the following from Jack Schwager's enlightening interview with hedge fund manager Colm O'shea:   emphasis mine...

“ shouldn’t expect a big bull market to end in any rational fashion.

The smart managers will be managing less because they don’t look as good as the bulls, since they’re going to have lower net long exposure?

Right. Because the bulls control most of the money, you should expect the transition to a bear market to be quite slow, but then for the move to be enormous when the turn does happen.

Then the bulls will say, “This makes no sense. This was unforeseeable.” Well, it clearly wasn’t unforeseeable.”

“ How then did you position yourself during 2006 and 2007?

We recognized that we would underperform the bulls by quite a bit because in a bubble the true believers will always win.

That’s fine. You just need to make decent returns and wait until the market turns. Then you can make great returns.

What I believe in is compounding and not losing money."

Have a great day!

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