Don't Bother Me Until Lunch
Is it time to sell?... The comedy of the headlines... Don't bother me until lunch... A reminder about risk management... Must-see video: Why the 'reverse repo' market matters...
This note arrived in our inbox early this morning...
Paid-up subscriber T.W. was concerned...
Well I'm worried today about our stock futures... and the world sell off that's happening now... I know you've prepared us for volatility, and I haven't sold anything yet, but this morning [the] worldly sell off is huge. IS IT TIME TO SELL???
After reading this e-mail, we checked the latest financial headlines to see what the mainstream media was serving for breakfast today. We normally ignore them until at least lunchtime, as to not cloud our judgment and keep us focused on sharing the best of our research.
Here's a classic example why... CNBC's main story this morning before the markets opened here in the U.S. included this headline... "Dow drops 500 points amid global economic recovery concerns, bond yields slide."
An hour later, it was the same headline with different numbers... "Dow drops 450 points amid..." An hour after that, it was "Dow drops 400 points amid..." And then, another hour later, it was "Dow drops 250 points amid..."
You can see why we ignore the headlines until lunch... By noon, the Dow Jones Industrial Average was down less than 1% from yesterday's close. That's hardly a blip on its long-term chart or even that of the past few months.
By then, you could've alternatively and accurately written the headline as... "Dow drops to level not seen since last Tuesday."
We're not trying to be flippant or poke fun here... We're only trying to answer T.W.'s question as we would want to hear it.
To be fair, it's easy to get caught up in the daily noise and gyrations of the market...
And beyond that, the single-day pullbacks were a little bit greater overseas... Hong Kong's Hang Seng Index fell nearly 3% today. And the STOXX Europe 600 and German DAX indexes each finished down closer to 2%.
The media will tell you it's at least in part because the Olympics in Japan, which start in two weeks after being postponed a year due to COVID-19, won't have any fans because of another surge in cases and the highly contagious Delta variant. And that may be true... or it might not.
As our colleague Dan Ferris shared in an e-mail earlier today, "Isn't somebody supposed to say, 'The market is down because of a hexagonal witch potion day' or something?"
His point being, anyone who tells you they know for sure why the market is up or down isn't telling you the truth... Myriad factors go into it.
More to the question at hand, though...
We can't provide individual advice here at Stansberry Research... but the first thing we would say is that the answer to "Is it time to sell?" depends on what "it" is.
There are millions of things that anyone could own at any given time and even more combinations...
But a good reminder for anyone, at any time, is that you never want to sell (or buy) based on one down day in the markets – or one up day, for that matter – unless, of course, you've done the proper homework beforehand.
By that, we mean if you've previously determined the levels at which you're comfortable buying and selling a particular stock or asset... and one of those numbers is reached on that particular day... then it's time to do it.
If you're asking the question "Is it time to sell?" you probably haven't done this... because if you did, you would already know the answer based on what's right for your individual situation.
If your stop loss is hit, sell. If a stock drops to your buy level, buy...
Just yesterday, for example, I (Corey McLaughlin) made a tiny trade in cryptos. And I literally wrote down at what price I would sell the position if the price dropped there, based on how much money I'm willing to lose.
I also wrote down where I would sell the position if the price rises... In the end, I'm risking 20% on the downside to possibly make 50% on the upside.
If the position goes wrong, I'll be down 20% and move on to the next one, doing the risk-reward exercise again. If it goes right, I'll be up 50% and move on to the next one, too.
It might sound too calculated, but that's the idea... You don't want to just play a guessing game and hope to get lucky. Plus, the exercise really isn't that time-consuming... and it can help you realize if you're even in a good position to make the trade in the first place.
Practically, "managing risk" makes it much easier to not sell too early and or too late. You might do this by hand, in a Microsoft Excel spreadsheet, or using a platform like TradeSmith, which is well worth it.
(For more on this idea, be sure to read TradeSmith CEO Keith Kaplan's Masters Series essays from over the weekend here and here.)
This is why our editors spend the time deeply researching stock valuations and trading patterns... and sharing that information in their daily and monthly publications.
That's also why, when they publish a recommendation, it comes with one or all of the following – a suggested "buy up to" price, a recommended stop-loss level, and how much of your overall portfolio they recommend allocating to that particular pick.
And finally, that's why if it's time to sell, they will let you know as well.
Paying attention to these kinds of details is the practical way to manage risk like the pros... It comes in handy on emotional mornings like today, when it might seem like it's time to "sell everything."
And that's why we, seriously, don't like to be bothered by any mainstream headlines until at least lunch.
Instead, we'll read what our editors say about the headlines...
It's not a coincidence that Stansberry NewsWire editor C. Scott Garliss addressed this topic today in an update headlined, "Growth Concerns Are Driving the Market Narrative."
Scott, who worked for 20 years on Wall Street before joining Stansberry Research, wrote...
Wall Street money managers and traders are suddenly worried about a slowdown... But don't be surprised if they're jumping the gun.
I'm up late every night reading what's going on around the globe. I can't help it... I'm an information junkie. But by going through the process regularly, I feel it gives me an edge on the developing macroeconomic narrative.
Then, by thinking about these items in terms of the bigger picture, and thinking like an institutional investor, I have a better understanding of how Wall Street will react.
You see, if Scott were a professional football coach, he would be someone like the New England Patriots' Bill Belichick... who is always anticipating how the offense will react to a particular defensive scheme and who is one step ahead by planning for that reaction.
In other words, when the headlines come out, Scott is not surprised. He's already looking around the next corner as if he were a long-term investor. And this morning, he wrote...
Overnight, there were a couple of headline items that stood out to me. And both themes are stoking global economic growth concerns.
After all, investors everywhere are ebullient about the pace of growth and its potential. Sometimes that means the market environment's priced for perfection in the near term. Put another way, there's little that can happen to outperform those high expectations.
And today's worries center around two familiar items – China and rising coronavirus infections. And it's causing a rather large rotation out of stocks and into bonds.
While the rest of us slept here on the East Coast of the U.S., China's State Council said it would use central-bank policy tools to improve lending capacity and boost economic support.
On the surface, one might say "that sounds good"... But according to Scott, that statement raises the question about what happened to the strong growth outlook that Chinese officials have had over the past several months. More from his post...
Loosening policy implies slowing growth.
Recent economic data in China, like official Purchasing Managers' Index numbers, have indicated as much. And the Wall Street narrative this year has been the government's tightening policy because of too much growth. Earlier in the year, Beijing went so far as to tell banks to stop lending.
China is viewed as the world's growth engine because it produces many of the goods consumed in the rest of the world. So a slowdown there could imply a slowdown everywhere else.
If you're a large money manager, Scott says, this all makes the case for hedging your bets in the short term. And you might do that by buying safety investments like bonds...
The trailing 12-month dividend yield on the S&P 500 Index is right around 1.4%, compared with the current yield on 10-year U.S. Treasurys at 1.3%. That makes for an easier decision to sell some stocks and buy bonds if you're worried about stocks.
And with bond yields heading lower lately – the 10-year Treasurys yielded 1.7% in late March – that appears to be what's happening, even with inflation fears. (Remember, as bond prices rise, yields fall.)
As we wrote in the June 11 Digest, institutions have also been putting a lot of money in cash – roughly $400 billion since the beginning of the year. As Scott also reports, institutions have parked a significant $1 trillion in the Federal Reserve's "reverse repo" facility. (You can learn much more about that in today's must-watch featured video below.)
If you worry about declining output and the added threat of rising Delta-variant infections... and if you believe the markets are ripe for a pullback... one can understand taking the precaution of going to bonds or cash today. But Scott believes today's sellers might miss out on gains in the coming days, weeks, and months as the "Melt Up" continues.
As we just wrote on Tuesday, we don't want you to be caught off guard when stock valuations return slightly back to Earth... But we don't want you to miss out on gains either. And as Scott ended today's update...
A slowdown isn't going to materialize out of thin air. These things take time. So don't let the first head fake suck you in. The short sellers are happy to feed the media outlets with all sorts of narratives. Have a long-term and steady perspective. And we'll keep our eyes on the horizon for any signs of trouble that might be brewing.
About that narrative...
As we send today's Digest to our editor, the CNBC headline of note is back to "Dow drops more than 250 points amid..." and it isn't even the main story on its website. It would probably be better to say the index gained more than 200 points since early this morning.
But as the saying goes... Don't let the facts get in the way of a good story.
Why the 'Reverse Repo' Market Matters
The "reverse repo" market is exploding. Reverse repos are used for short-term borrowing and lending, often overnight. Central banks use reverse repos to add money to the money supply via open market operations.
George Gammon, founder of The Rebel Capitalist Show, explains to our editor-at-large Daniela Cambone that the Fed's reverse repo facility is exploding higher again, which is signaling a coming economic crash. Recently, the facility took in a record $992 billion in cash from money-market funds...
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.
New 52-week highs (as of 7/7/21): Apple (AAPL), Automatic Data Processing (ADP), American Homes 4 Rent (AMH), American Tower (AMT), Amazon (AMZN), American Express (AXP), Crown Castle (CCI), Costco Wholesale (COST), Cintas (CTAS), Dropbox (DBX), DocuSign (DOCU), Expeditors International of Washington (EXPD), Alphabet (GOOGL), Hershey (HSY), Intuit (INTU), Invitation Homes (INVH), IQVIA (IQV), Microsoft (MSFT), Motorola Solutions (MSI), Novo Nordisk (NVO), ResMed (RMD), ProShares Ultra Technology Fund (ROM), ProShares Ultra Health Care Fund (RXL), S&P Global (SPGI), ProShares Ultra S&P 500 Fund (SSO), Trane Technologies (TT), Visa (V), Vanguard S&P 500 Fund (VOO), Waste Management (WM), and Zebra Technologies (ZBRA).
In today's mailbag, feedback on yesterday's Digest by Kim Iskyan. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Thank you. Great article. I need the reminder most when everything seems perfect but I have a funny feeling in the pit of my stomach. ALSO, on a related tangent, I was pleased to see Doc take a lead role on Portfolio Solutions.
"I find it troubling that [pro traders are] buying Bonds while Main Street is buying Equities ahead of the Jackson Hole FED Meeting. But maybe they'll scare the FED into ignoring Inflation, again? Thanks again." – Stansberry Alliance member Bill B.
All the best,
Corey McLaughlin Baltimore, Maryland July 8, 2021