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Things to know

  • Dorian gets ready to     slam into Florida
  • Mkts celebrate the idea     of further trade talks in September
  • Gold surged 9% in August     as the inverted yield curve caused the flight to safety

 Coming to you live from South Florida – as I (we) brace for the coming storm….and this time it’s not the trade storm, or interest rate storm or recession storm – it is Dorian, a category 2 hurricane that is soon expected to become a category 3 & then  4 storm by the time it hits the coast – just where it hits is still anyone’s guess – some models call for it to hit  more north – Florida/Georgia border –  while other models are suggesting a direct hit on Mar-A Lago – (the former Canadian PM – Kim Campbell is apparently rooting for the latter ….. which btw is just 2 miles north of where I moved to in June…..but it is what it is….and it’s time to batten down the hatches….- so depending on what happens Sunday into Monday will dictate the next time you hear from me…..but let’s see what happens…..

 Now the other storm that continues to build is the recession storm  as the yield curve continues to invert – leaving  Liz Ann Sonders – Chief Investment Strategist at Charlie Schwab & Co  to Tweet  the results of a WSJ survey – given to a set of economists asking  – What is the average probability of the US economy being in a recession within the next 12 months? (Which leaves me to ask – Who cares?)

 “A survey of economists by @WSJ, highest recession probability reading ever in history of survey”  – Well – so there you go…The economists have spoken……The bulk of them agree – the recession is coming…..Wow, look at that…..I guess my question is – Is that really a relevant survey? I mean what are you supposed to do with that information right now?  Are you gonna re-allocate your portfolio based on that survey?  (And that is NO – you should be re-allocating your portfolio based on its performance to date – NOT based on an event that might happen 12 months out)  Rhetorical questions for sure, but ones that have to make you ask – What’s the point?  Of course the recession is coming…we’ve talked about it…….but the FED and the President are working hard to kick that can down the road a bit longer…..Now both of them have different objectives for sure…The FED is trying to steer the economy in the middle of ‘the trade storm’ while Donny is trying to force rates lower to keep the economy going – in the middle of this trade storm –  as we move in the Presidential election cycle…..And btw – lower rates would NOT hurt his real estate empire either! (But that’s another story…..)

 So as money flows into the bond mkt – at all ranges – 2’s, 10’s and 30’s prices go up and yields go down…..that’s just the math – and if the 10’s are more active then they move more dramatically – sending the yield curve (2’s & 10’s)  into its current inverted position…..This is – in my view – very different – since the inversion is the result of massive money flows into that asset as long term investors search for yield…..vs. money moving into the bond mkt because the US economy is going into recession.  Which doesn’t mean that a recession ISN”T coming – it is (and so is Christmas) – all I’m saying is that this recent inversion on it’s own is not the final nail in the coffin by any stretch – so many other bells have to ring to confirm….…..

 So as the recession talk heats up – and it will – you should be aware of how your portfolio is balanced.   Is it in balance or is ‘out of balance’ and that is the reason you should make changes to your allocations –  that is what you do as an investor – that is what you expect you financial advisor to do for you –  you remain dynamic and re-allocate your portfolio and add new money into your portfolio as the plan demands…..Capisce?  Not because some survey is telling you that a group of economists all agree that a recession is coming….

 So – here we are – at the end of August – a month that has seen a real rise in volatility as the concerns mounted over the state of the trade war……We’re in, We’re out, We’re raising tariffs, We’re delaying tariffs, China retaliates, China doesn’t retaliate, Meetings are on, Meeting are off………sending the algo’s into a daily frenzy – at one point shaving 8% off the years performance before Donny couldn’t stand the pain any more –  mkts collapsed last Friday causing all kinds of headlines that the ‘end is near’  – leading him to hit the Twittersphere on Sunday  detailing ‘clandestine’ calls (over the weekend)  suggesting that China WANTS to come back to the table – in fact nearly begging to come back…..and so – here we go again…..the algo’s go into overdrive as the interpretation is that we’re gonna get a deal sometime soon – and boom – the mkt rallies 4% this week…..seeming to ignore all the recession chatter – I mean on the one hand they are screaming that the bond mkt is signaling recession causing stocks to fail and on the other hand they go all in once they ‘think’ that a trade deal is coming – which would then negate the ‘inversion signal’  sending the message that it’s all good…. Again – if you’re a long term investor – don’t’ get rattled – ignore the noise and stick to the plan…..

 And btw – all the chatter late Wednesday and into Thursday is nothing more than talks about ‘more possible talks’ in September…..they were not actual trade war discussions at all… just the headline that more talks are possible is what moved the mkts this week ( speaks directly to the angst) along with the usual month end window dressing…a time when asset managers attempt to ‘dress up’ their portfolio’s before month end performance statements go out to investors…..

 With a host of apparel,  and sporting goods about to get hit with new tariffs on September 1st (remember that Trump delayed the tariffs on electronics ahead of the holiday shopping season)  and with all the recession chatter taking place – PM’s (portfolio managers) have become much more defensive in order to protect the portfolio’s (not a bad decision) ……So we have seen utilities, consumer staples and REITS all surging this month while every other sector came under pressure…..and in my opinion much of the this weeks rally is just bargain hunting as investors realize that some of the damage done to very good, solid names is overdone and so it is right to pick up some cheap stock for the long term.   Think financials, energy, tech, healthcare, communications……etc.

 The action this week  – even in the middle of all this recession  talk – has seen stocks rally off the most recent lows…bringing us up and thru intermediate term resistance causing a surge by the algo’s that is now about to challenge the next resistance trendline….at 2945…..on the S&P.   A level that has proven to tough to break during the month….We’ve tested it 3 times so far this month and will most likely attempt to test it again today….but it is a long weekend and so much can happen…..which is why I think it fails again….. I think that September will prove to be another volatile month before it settles down and churns back towards the years high by the end of the year…..

 Gold is backing off a bit – currently down $3 after its spectacular surge over the summer…gold is up 20% since the June break out and is up 9% this month alone on the back of all the angst created by the recession talk, the inverted yield curve talk, new tariff talk and the failure of any real movement on trade.  As long as the tension remains high – then expect gold to continue to benefit as that is the ultimate safety play…..

 Oil – has rallied 11% in August –  and is now struggling with both the short (50 day) and the long (200 day)  term resistance as both of those trendlines converged at  $56.60 ish……larger than expected drawdowns this week have helped that mood and projections by OPEC that supplies will decrease in 2020 are part of the driving force.  If it pierces this level then expect the surge to take us to $58.10 in short order. 

 Take good care – Enjoy the weekend, be safe –  


 Dark & Stormy

 Considering that the country is about to get slammed by Dorian and  the future remains cloudy – let me give you a cocktail that says it all.

 For this you need:  Dark Rum, Ginger Beer,  bitters and a lime slice.

 In a tall glass – filled with ice – add the rum and then top with the ginger beer, bitters and garnish the glass with the lime wedge.