Market Update: 12-24-18

The Issachar Fund (LIONX) is Still on Defense with 100% in Cash (money market: FIGXX)! LIONX is up 2.41% YTD with a Maximum Draw Down (MDD) of only 4.43% versus a loss of -7.87% for the S&P with an MDD of -17.12%. The S&P 500 peaked on 10/3/18 and I took LIONX to an all CASH position on 10/4/18. Since October 4th, I have been invested four times (< 2 days and < 20% each time) and have experienced a total net loss of less than 1% while the S&P has lost over 16% in the same period. Actively managing risk for the last 28 years has not been an easy task but it has provided comfort during market declines. I believe the Quantitative Easing (QE) Bull Market of the last 9-years is being replaced by a Quantitative Tightening (QT) Bear Market and “buy and hold” investors will not be happy the way QT ends. I believe global central banks have created enormous amounts of liquidity (QE) and artificially low interest rates in an effort to save us from a global collapse after the 2008 financial crisis. These same banks are now removing liquidity (QT) from the system and the stock market is feeling the pain. QE pushed stock prices far beyond their “normal” Price/Earnings (P/E) historical ranges and we are now seeing P/E multiples contract. However, they are still very stretched, so I expect more steep declines ahead. No one knows how long this QT induced stock selling will last but it might go on for longer than most people expect. Imagine how far the market will drop when we get some final “capitulation selling” as investors stare at their 401-k balances and the “fear selling – get me out at any price” unfolds! I would not be surprised to see a late “Christmas Crash” decline of 10% or more in one day as panic sellers seek relief. After some sort of “capitulation selling” occurs then I believe the market might be able to put in a trad-able bottom. However, one must remain vigilant and disciplined to take advantage of the opportunity should it occur. I am building my Watch List and patiently waiting for the next great opportunity to hopefully make us some money. Cash is not Trash and it still may not be too late to get out before the “next shoe drops”!

The Fed Fumbled and raised rates again and plans two more hikes in 2019! The S&P 500 had its worst week (>5%) in over a decade. The Dow is having its worst December (>12%) since the 1930s. The CBOE options put/call ratio spiked to 1.37 earlier last week yet did not produce an ounce of a bounce. Last Thursday’s pummeling jacked the put/call ratio to 1.82 which is at least a 5 + year high, yet the market still could not produce a rally. The government shut down and looming tariff “tiffs” are just a few “alibies” the market is trying to pin the decline on, but I believe this is typical Bear Market action. Oil is down over 40% since the stock market and oil peaked on October 3rd and the trend is still headed lower. The US is now a net exporter of oil and natural gas so clearly, we have more than enough supply to meet our needs. Combine an oversupply of oil with a global demand decline and you have the makings of lower oil prices ahead. I believe that we will have more self-driving electric vehicles in the near future and that might also decrease the demand for oil therefore driving oil prices even lower than we are accustomed to. Times are changing so we must recognize and adapt, or face Pride going before destruction. Proverbs 16:18

A Four-Letter Word no one is talking about…….FANG! FANG is an acronym for Facebook, Amazon, Netflix and Google that was very popular in the Bull Market. Since their price peaks, Facebook is down over 42%, Amazon is down over 32%, Netflix is down over 41% and Google is down over 22% and the trends are still pointing lower. Please remain humble and open to the idea that we may be transitioning from a “buy the dips” Bull Market into a “sell the rallies” Bear Market . The “market” is usually right, so we must question our convictions until we “understand” what the market is trying to tell us. I have been managing money since 1990 and I have learned that there are times to be invested and there are times to “go fishing”. I hear the fish are biting, are you “fishing or fighting” the tape?

The Good News is that “this too shall pass”! Bond yields may be falling because they do not think that the Fed will be able to raise rates next year due to a possible economic slowdown. I am watching the bond markets carefully because that is where I expect the next great opportunities will be found. The extreme wash-outs we are seeing in the Junk Bond and Floating Rate markets will likely produce some incredible buying opportunities for investors with patience and cash. I have witnessed these wash-out events many times in my career and once the “get me out at any price” indiscriminate selling is done, then the bargain hunters can swoop in for the kill. Floating Rates could become our next great buying opportunity. However, I will wait for the trend to bottom and turn higher before I consider a position. Remember, the “Trend is Your Friend”! If you are looking for a manager to invest your money like his very own, then I welcome you to join me as a shareholder in LIONX. I am looking forward to a very prosperous 2019 but we must be patient and let the trends develop! I never advise trying to catch a falling knife!

Check out where MorningStar has placed the Issachar Fund (WOW!) in the One Year and YTD rankings of the Tactical Allocation Category:

Bottom line: I believe we are in a Bear Market, and this is not a time to be long any stock regardless of its dividend. Every time a stock pays a dividend, the price of the stock declines by the amount of the dividend so what are you really gaining? I am reading books on shorting and learning from people who know how to make money in a Bear Market. Price never lies, and the study of Price and Volume gives us the whole truth. Money generally consistently flows in the market during Bull Markets and money generally flows out during Bear Markets. What is your “line in the sand” threshold of pain where you say “enough is enough” and I am selling? Remember, no one cares more about your money than you do! Do what is best for you and your money regardless of what others might think or say.

Wishing Everyone a Very Merry Blessed Christmas and a Happy, Healthy and Prosperous New Year!

(Portfolio holdings are subject to change at any time and should not be considered investment advice. There is no guarantee that any investment will achieve its objectives, generate positive returns or avoid losses.)

Health Tip:
Studies show that eating a proper breakfast is one of the most positive things you can do if you are trying to lose weight.

Inspirational Quote:
Life is 10% what happens to you and 90% how you react to it.

Verse of the Day:
You will conceive and give birth to a son, and you are to call him Jesus. Luke 1:31
Jesus is the reason we celebrate Christmas!

The chart below shows the YTD total return of LIONX (red) verses S&P 500 (green). I believe that managing risk is the key to long-term success. Pictures are better than 1,000 words! Past performance is no guarantee of future results.