Quote of the Week
“Success is liking yourself, liking what you do, and likimg how you do it” – Maya Angelou
When Bad is Just Bad
Last week was another typical week for the markets in Quad IV. The S&P 500 was down -2.89%, the Dow was down -2.92%, and the Nasdaq was down -2.68%. September was the worst month for the S&P 500 since March 2020, down -9.3% and the Nasdaq was pummeled -10.5% wiping out all of the gains from the July-August rally. As of the end of this quarter, year to date (YTD) the S&P 500 is down -24.8%, the Dow is down -20.9%, and the Nasdaq is down -32.4%. All three indexes are what is considered in bear market territory, meaning down -20.0% or greater. Monday and Tuesday of this week we are having a bear market bounce off the low end of the risk ranges. I don’t think by any means the bear market is over.
Just a few examples of the direction of the economy: ISM (Institute for Supply Management) which is the indicator for the state of the U.S. Economy slowed to a 29 month cycle low in September. ISM new orders slowed big time to 47.1 in September vs 51.3 in August. ISM employment also slowed big time to 48.7 in September vs 54.2 in August. Job openings saw its biggest drop since April of 2020 and we all know that was the the height of the first wave of COVID.
This is a quote from Keith McCullough the CEO of Hedgeye where we get our data to make our investment decisions.
“On a lot of levels it’s worse now than in 2008. If 2008 was about Wall Street collapsing on itself, on all its conflicts of interest and lies, this one is more about Main Street. Main Street is broke. Main Street is taking all this inflation into their cost of living. Main Street has the highest credit-card interest going back to the 1990s. It’s way worse that 2008 on that basis. If you are trying to pay your bills with credit, it’s getting worse and worse. And then they’re going to lose their jobs. Labor collapsing is always the last thing to go down. We’re right on the cusp of the labor cycle going the wrong way.”
We have reduced the risk in the portfolio. Something is going on that I can’t put my finger on. The cost of Credit Default Swaps which is insurance for institutions failing to pay their debts is sky rocketing up. England is having trouble protecting their currency, the Pound. A major bank Credit Suisse has seen the premiums on their Credit Default Swaps at a higher level than that of Lehman Brothers which collapsed during the banking crisis of 2008. Once a major banking institution collapses, financial contagion starts to spread throughout the banking system. That was why the US. Government had to bail out the banking system in 2008.
We are now at 92% cash in the portfolio
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These are Larry Lof’s opinions and not necessarily those of Cambridge, are for informational purposes only and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs.
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