It?s ?RISK ON? Again
?Well, I?ll either be up 25% by the end of June or I just blew up my 2014 performance.?
That is what I told my esteemed colleague, Mad Day Trader Jim Parker, right after I engineered a major ?RISK ON? adjustment for my model trading portfolio.
If I am right, and bonds peaked and yields bottomed for the year, then my followers will make a fortune. Money will pour out of bonds into shares and other risk assets, taking the indexes up substantially through December.
If I am dead wrong, then the market?s judgment could be harsh.
Welcome to show business.
Starting two weeks ago, a whole range of short-term risk indicators started flashing green lights.
Most importantly, the bond market (TLT), (TBT) topped out, taking with it the entire fixed income space into the toilet, including corporates (LQD), munis (MUB), junk (JNK), and emerging market debt (ELD). Only high yield master limited partnerships (LINE) and REIT?s were spared the decimation.
Then we saw the prices for credit default swaps utterly collapse or the cost of insurance for individual debt instruments. Why buy insurance if you are going to live forever?
Volatility hit decade lows at the $10 handle. Hundreds of large cap and technology stocks broke out to the upside on the charts, taking off like a scalded chimp.
Out went my Trade Alerts to buy (JPM), (IBM), (CAT), and (MSFT). Mad Day Trader Jim Parker successfully sold the euro short (FXE) and bought the grains against it (JJG).
Distress short covering of equities by hedge funds also showed it?s ugly hand. That is, ugly if you?re a hedge fund. Visions of resumes posted on Craig?s List danced in their minds or maybe a future as an Uber taxi driver. All we needed was a few prints of new all time highs by the major indexes, and it was off to the races.
Of course, the spark for the melt up was the healthy May nonfarm payroll report showing a gain of 217,000. The headline unemployment rate maintained a seven year low of 6.3%. When the (SPY) gapped up, it was all over but the crying.
Clearly, the pain trade is to the upside. Many hedge funds are still running net shorts, albeit of substantially reduced size. Active portfolio managers are underweight stocks. Even Apple (AAPL) is under owned as it approaches a new all time high. Hey Apple, post split under $100? Sounds like a bargain to me!
To see all of this happening in June, when stocks are entering a seasonally slow, weak period, is nothing less than amazing. To witness a flat line ?time? correction take place instead of a long overdue ?price? correction over the last three months, right at an all time high, is also a shocker.
This time it really is different.
That means the move in the S&P 500 up 10% by yearend is now a chip shot. It makes my own target of 15% to 2,200, derided by many as ?Mad? when I made it at the New Year, as far more realistic. It?s the story of my life.
Add in 3% of dividend income, and the large cap index could bring in a total return of 18% in 2014. That?s less than the 30% gain we saw in 2013. But it?s better than a poke in the eye with a sharp stick.
If you want to hear me expound on my current views at length, please listen to my interview on PreMarketPrep at Benzinga TV, by clicking: https://www.youtube.com/watch?v=-PQMtT_a7EE .
Could my ?Golden Age? scenario be unfolding early?
