I know that some of you got your face ripped off today in a market that dropped 495 points (on the Dow) from yesterday's close, and then finished up 377 points... an 836-point swing. Some of you... and, you know who you are... are still clinging to the assumption that real economics matter and simply hoping for a better outcome is not a good investment strategy. Impeccable logic, by the way... So, when the market plummeted this morning, your bearish positions looked great until the huge trend reversal. I can just hear your thinking... "The move today was solely based on the assumption that a vaccine will become available by the end of the year and we all know that will do little to change the economic calamity we are living in."
You just 'know' the market is wrong. And while I cannot argue with your logic regarding the economy, you are ignoring the cardinal rule... "The market is never wrong." The only way to make money in this market is to do your best to conform to where it (the market) wants to go and stick with the trend it gives you. And, above all else... STOP GUESSING. You cannot guess your way into long-term profitability, because your guesses can sometimes be devastatingly wrong.
All-in-all, we had a pretty good day, today. Tactical Growth ended up nicely and in our Diversified Income strategy, we picked up a couple of very strong dividends from our holdings that went Ex-Div today. I also bought another strong, up-trending stock in Tactical Growth. At this point we are about 25% long in Tactical Growth; 20% long in Diversified Income; and 100% in cash in the remaining 3 strategies (Total Market, ULTRA and ULTRA-MAX). So... we are still very much on the cash-is-king side of the ledger.
While I believe a strong move in the market to the downside is far more justified (notice, I did NOT say "likely") than a strong move to the upside, I am becoming more and more convinced that between the Fed and Congress (and the Treasury, of course), the odds of there being a 'floor' in this market are relatively high. I can't prove it, but it would not surprise me to learn (perhaps years down the road) that the Fed is buying equities just to keep the market from crashing.
Investment-grade corporate bond issuance this year has broken the previous monthly record twice, with March volume of $262 billion breaking the previous record in May 2016 of $168 billion, and April volume of $285 billion breaking March’s record. Year-to-date investment-grade bond issuance through April totals $765 billion, putting 2020 on track to easily surpass last year’s total of $1.1 trillion.
As long as Uncle Sugar (in this case, the Fed) is buying bonds hand-over-fist, it is no wonder that these records are being broken. And, whether anyone in Washington will admit it or not, the Fed buying these bonds is tantamount to a corporate bail-out, because if the Fed wasn't buying the bonds, it is likely those bonds could not be sold and the companies issuing the bonds might otherwise go bankrupt. But, all of that is mostly conjecture on my part... sort of like reading between the lines.
What all of the above really boils down to is this... Much of this stock market is now being artificially manipulated. The government seems bound-and-determined to keep the economy afloat until it is back on its feet. Actually, I applaud our government and its leadership for doing all that they can to keep us economically alive. I do believe there will be a massive cost to pay for all of this largess at some point in the future, though. I also detest the politically motivated pork-barrel spending that is being thrown into the bills (particularly, the current one being debated) to help small businesses and those out of work due to COVID-19.
For now (today, at least), the market has its rose-colored glasses on and, as a result, the market ended up +1.62%. We'll take it and move on to tomorrow.
One final item... Some of you have been asking for an update on my Delta-Neutral testing... Well, the strategy is certainly not ready for prime-time. The swings in the market have gone from every few days to almost daily to intra-day. This makes the process of mathematically picking short-term trends very problematic. We are moving the testing into the next phase, starting tomorrow morning by looking at ways to shorten the exposure and move more quickly to a profit. I will share more with you as we find (hopefully) the right combination of algorithms and rules needed to achieve our objective... small, incremental gains based on the 'trend-of-the-day'.
If this were easy, everyone would be doing it. We may find the results too inconsistent to use. But, I am still optimistic that we will find a good tool to add to our arsenal of investment tools to use to growth and protect our clients' capital.