09-21-2020: Data versus Assumptions... Watching Both

Year-to-Date Strategy Stats as of COB today:

+ 37.37% : Turner Quant Advantage (TQA)

+ 12.92% : Tactical Growth (TG)

+ 2.00% : Diversified Income (DIS)

+ 17.64% : Leveraged Index Opportunity (LIO)

+ 1.56% : S&P 500


Before the death of Supreme Court Justice Greenberg this past Friday, we only had to take into account: The likelihood of a $1.5 trillion relief bill coming out of Congress soon, the probability of a COVID-19 (I'm not permitted to say, "China Virus") vaccine and, of course, the most contested presidential election in history.


Please keep in mind that, for this forum, I am not taking a political side (at least I am trying not to). Do I have one? You bet your bippy, I do. But, my focus is simply this... What could potentially negatively or positively impact the stock market and how do these events stack up against the actual data.


You already know that I am a big believer in trusting facts over anyone's (including my own) guesses about what the market may or may not do in the future. The facts that I trust are historical; meaning, they are based on what HAS happened and not what MIGHT happen.


This means, I watch the trends, the volatility and the risk of selecting the right investment strategy. Trends, volatility and to a large degree, risk can be mathematically measured. Numbers don't lie.


As I said in this morning's Client Letter, the market data are weaker at the end of last week than they were the week before. I was already mostly in cash in all of our portfolio models except DIS and was rapidly moving that model into cash as my tight stops fire. Indeed, I had been moving some capital into inverse ETFs in the TQA and LIO models since September 3 when this current downturn started. [NOTE: Leveraged Index Opportunity (LIO) is a name-change only for the Aggressive Growth strategy.]


Then, rather unexpectedly, we lost the most liberal Justice on the Supreme Court and all hell has broken out regarding RBG's replacement. I am not going to go into the political machinations of this hotly debated topic. It is too much like watching sausage being made... it is just not a pleasant discussion in polite company.


But, it did throw the proverbial monkey wrench (is that a pejorative term in today's PC culture??) into the already boiling caldron in Washington, aka Congress. The politics of power is so pervasive in that town, it is extremely hard for us common folk to figure out who or what is telling us the truth about anything. Of course, I think one side is closer to telling the truth than the other, but sometimes I wonder about that line of thinking, as well.


The monkey wrench is this: The left side of the aisle has done and is doing everything in its power to keep Trump from winning the election. For some of my readers, this may be considered a good thing. But... and this is the rub... now, with the open SCOTUS seat and the ability for Trump to replace a highly liberal judge with a highly conservative judge and swing the political makeup of the Supreme Court in a direction not desired by many on the left, all-out war has broken out (as if it hadn't already). The first casualties of this war are the American workers who are desperate for some paycheck assistance. But, the left will do anything to keep Trump from getting any benefit from more relief money for these very hard hit Americans and there seems to be no desire to reach a compromise that will, in any way, benefit Trump's reelection.


You may agree or disagree with my assessment, but the fact is, it does not look like the $1.5 trillion will be released to Americans who are out of work due to this pandemic; not before the election.


With more and more people hurting from not being able to go back to work, there is the strong probability that our economy will continue to languish. Add to this, that the UK is considering another nation-wide lock-down due to increasing COVID infections. This adds more fuel to the fire that the global economy is far from firing on all cylinders.


My conclusions are these: Without a vaccine before the election and without an economic assistance package before the election and with the all-out war now being fought over the next Supreme Court appointment, and with the down-trending market data, I am seeing very little upside potential in this market and lots of downside potential; maybe through the end of this year... but at least through the election cycle.


And, if Trump does not win, we already know that Biden and his platform is anti-investor. They have promised to raise taxes and have even thrown out the possibility of taxing unrealized gains. This is a story we will have to see unfold or not in a post election America.


The very, very good news is this... We are prepared for a market that falls off a cliff. We are prepared for a market that booms higher. And, we are prepared for a sideways market. How are we prepared? We do not buy-and-hold. We react to the market with a bullish investment bias in bull markets and a bearish investment bias (utilizing inverse ETFs) in a bear market. We have no idea where this country is headed, politically, but we have strategies already in place to handle whichever direction the market heads in the future. All we need is a trend or a trend reversal and both of those events can be measured. And from that measured data, we can position client capital accordingly.


This is why, with the exception of the DIS model, I have put 20% of capital to work into inverse ETFs which tend to go up in price as the market drops. If this trend continues, I will be adding more shares to our inverse ETF holdings. I am in the 1x index inverse ETFs in TG; 2x index inverse ETFs in LIO; and 3x index inverse ETFs in TQA. And, I am keeping the stops pretty tight.


Yes, there are some stocks out there that are still booming higher, but when the market's 'current' is moving strongly in one direction, I do not want to be holding high-flyers; especially if around the next bend in the river is Niagara Falls.

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