LYONS MARKET UPDATE – Monday, December 31, 2018
Cash is a good place to be! I took a few short stock positions and quickly covered them as they were going in the wrong direction and the Fund ended up nearly break-even on the trade. I believe this is a trader’s market and not an investors’ market. I will continue to sit patiently in a money market fund waiting for the next opportunity. If Trump cuts a trade deal with China or the Fed stating that it does not need to raise rates in 2019 then we could see the market put in a tradable bottom. However, I believe that we are in a Bear Market (>20% decline) and we might be here for longer than the majority expect. Listen to your God-given common sense and do what is right for you and your money. If I am right about being in a Bear Market, then one might win simply by not losing. If you might need your money in the next five years, then I would recommend that you do what is necessary to not take on the same risk as the last five years. Cash is a position you should seriously consider if you have not already done so. I may have opinions about where I think the market is headed but I rely on the charts to tell me what I should do on a daily basis. Charts are like facts, they never lie and tell you the real story.
Last week, the market posted its worst Christmas Eve decline in history and then posted the best post-Christmas Day rally in history! Last Thursday was the biggest turnaround in history, as a 611-point Dow decline reversed in the last 90 minutes to a 260-point Dow gain. We have just witnessed a three-day reaction low rally attempt off an oversold condition. I now expect to see a retest of the recent low as I do not see a viable potential catalyst to take us higher so watch out below.
The Fed has not changed its balance sheet “unwinding” narrative, so I expect more selling. Since 2008, corporate financial debt has grown about 60% from $6 to $9.6 trillion. Corporate earnings increased about 27%, yet S&P 500 earnings increased about 60%. This is mainly due to all the borrowed money being used for stock buy backs. Keep in mind, this Quantitative Easing (QE) and now Quantitative Tightening (QT) “experiment” by the Fed has never been done. The Fed had about $800 billion on its balance sheet prior to the 2008 financial crisis and now has about $4 trillion. The Fed is selling $50 billion a month of bonds it purchased during QE which amounts to $600 billion a year that will be “drawn” from the market in 2019. This enormous liquidity reduction will more than likely cause a lot of asset displacement in 2019 as money gets reshuffled from one asset class to another. If we are lucky, this money will stay in the market, but I tend to believe this excess money will simply disappear as leverage and margin gets unwound. Remember, the Fed created this liquidity out of thin air and now I expect money to slowly evaporate into thin air. I hope that I am wrong, but I see nothing on the horizon that will change what is already set in motion. Does your money manager understand the big-picture and has he/she ever gone to an all-cash or do they subscribe to a “buy and hold” philosophy?
Bottom line: My Fund is 100% in Cash and I am patiently waiting for the next opportunity. We are up over 2% YTD with a maximum draw-down (MDD) of only 4.43%. I want to wish you a Happy, Healthy and Prosperous New Year!
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Important Risk Information
Mutual Funds involve risks including the possible loss of principal.
The Fund may hold cash positions when the market is not producing returns greater than the short-term cash investments in which the Fund may invest. There is a risk that the sections of the market in which the Fund invests will begin to rise or fall rapidly and the Fund will not be able to sell stocks quickly enough to avoid losses or reinvest its cash positions into areas of the advancing market quickly enough to capture the initial returns of changing market conditions. The Adviser’s judgment about the attractiveness, value and potential appreciation of particular asset classes and securities in which the Fund invests may prove to be incorrect and may not produce the desired results.
Maximum Drawdown (MDD) is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. MDD is an indicator of downside risk.
Quantitative Tightening (QT) is a contractionary monetary policy applied by a central bank to decrease amount of liquidity within the economy.
Quantitative Easing (QE)is an expansionary policy aimed at increasing the money supply in order to stimulate the economy.
Investments cannot be made in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Past performance is no guarantee of future results. NLD Review Code: 5432-NLD-12/31/2018