It is FINALLY Time for Our Shift To a Roaring 2021-2022 Cyclical Portfolio
Dear Transformity Ultra Growth Investor,
As we have been talking and warning about since early January, that when it comes to the 5 stock market bubbles that have been inflating since the Fed and US Treasury pumped in $5 trillion cash money into the US monetary system (and then Reddit Raiders turned into short squeeze maestros), we were looking for the 10-year bond yield stoked by future price inflation to reach significantly higher yields. That would poke a pin into the US equities bubble, let out most of the overheated air and take most or all of the giddy froth out of the 5 part American stock market:
In that note we said "The 2021 "stock market" today is bifurcated into 5 major sub-markets defined by the level of risk, volatility and secular/cyclical nature of earnings growth:
1) "The New Penny Stock Casino" with 20%+/- volatility on any given day
2) The Reddit CrowdSqueeze Casino where a stock like GME based on social media can run from $4 to $480 in 48-72 hours--and then back to $40 (still a 10X win) in the next 24-28 hours.
3) The SPAC Draft Pick Lottery where a SPAC like CCIV can move from $14-$66 on a rumor that it's merging with "Tesla Killer" Lucid Motors or a SPAC can move 100-200% in a day (and its warrants which WE buy into pre-reveal SPACS are up 450%!) when it reveals a definitive agreement to buy a SEXY BEAST of a company
4) The Market for Secular Growth Digital Transformity and ESG Stocks-- just taken a light rest ex-EV stocks vs. the BTC mania
5) Elon/Michael Saylor Bitcoin (and related stocks) Mania Stocks: Getting clocked as the mania wears off and enormous profits are taken
But symbolically, it was the abject absurdity of the $96 BILLION valuation on zero income Lucid Motors early Tuesday morning that made traders and portfolio managers stand up--look themselves in the mirror--and conclude "Holy Crap-- the stock market as a price discovery mechanism has gone insane--SELL!!!!"
It was only AFTER that stunning $96 billion valuation print on the Lucid acquisition price by super SPAC CCIV (selling at $46 OVER its cash value) that the US 10-Year bond yields exploded (bond prices crashed) to take the 10-year yield to 1.55% at the same time the S&P 500 yield was just 1.48% . . . and THAT sparked worry that the Fed would have to RAISE rates in order to NOT LOSE CONTROL of the bond market.
That prospect plunged a valuation grenade into most (not all) 30X-40X-50X-80X multiple of revenue stocks and then the announcements by major auto manufacturers that they were closing production lines for a month or more because they are out of semiconductors went after the semis as well.
Action to Take: We are going to protect profits on the most bubbly moves in OPTI, NETE and KNDI and ring the cash register to build cash. You of course are free to hold...but like our managed accounts, we manage for absolute returns and with our Ultra Income portfolio UP about 24% in 2021 including yields, we will end the first 60 days of 2021 up more than 21% in both portfolio which is crushing the S&P 500 which is up by only 1.8%.
The Good News: The Market for Cyclical Pandemic Recovery Stocks (which our Ultra Income Portfolio covers nicely) our "Travelgeddon" thesis got a real shot in the arm (pardon the pun) with news out of Isreal on how vaccines are preventing the spread experience as in "I'm vaccinated--now I am taking a friggin vacation or visiting family or just taking a road trip ANYWHERE that takes me out of my friggin home!!"
This report from MIT Technology Review says it all: "Vaccines have shown that they can stop symptoms of covid—almost completely preventing hospitalizations and deaths—but there’s been another big question out there: Does vaccination actually stop the spread of covid? Some diseases get knocked out completely by a vaccine, but with others, a vaccinated person might be less likely to become sick but still able to carry and spread the infection.
Early data have been pretty positive on covid-19 vaccines, but with limited information on transmission, we’ve heard mixed messages about what the post-vaccination future looks like. We’re waiting to find out who, exactly, the vaccines can protect. Is it you alone, or is it you and everyone around you?
Thankfully, Israel’s success in giving so many shots is helping us understand a lot more about that. This was highlighted in a leaked report from the Israeli government and Pfizer. Joshua Mitnick and Antonio Regalado got hold of the documents for MIT Technology Review, and they have some fascinating detail on what the report contains.
It describes observations made during three weeks in January and February when researchers were able to compare health records of unvaccinated people and people who had gotten their second shot more than a week before. They then compared the groups for five covid-19 outcomes: infection, symptoms, hospitalizations, critical hospitalization, and death. The unpublished study says the vaccine was around 93% effective in preventing symptomatic covid-19. Pfizer and its partner, the German biotechnology firm BioNTech, had found 95% effectiveness in their clinical trials carried out in 2020. The country-wide study was also able to show that hospitalizations and deaths dropped by similar amounts in the vaccinated group.
Because Israel tests people fairly comprehensively, the researchers were also able to estimate that the vaccine was 89.4% effective in preventing any detectable infection at all, including asymptomatic infections.
This means that herd immunity might not be very far away at all: in fact, the report says that infection blocking means Israel may reach the herd immunity threshold in March.
There’s still a long way to go, of course. Israel is way ahead of other countries in its vaccination program, as we said before. And most countries don’t even have any vaccines to offer yet, with most doses limited to a handful of rich nations. But the news comes in the wake of a preliminary study showing that the Oxford-AstraZeneca vaccine could curb transmission. Although experts caution that studies are not conclusive, the signs are extremely positive."
Add in J&J one shot vacinne approved this week and we are HEADED to the Promised Land of herd immunity and the "Reformation Trade" aka the New New Normal.
Final Note: Take a deep breath...we get market corrections about every 6 months for eh...about the last 50 years.
#1 My rule of thumb is IF I AM WORRIED about a position I own for myself or people paying me to manage accounts. I TAKE THE POSITION down to where I am not worried.
#2 WHEN WE SELL something, it is because 1) It has reached our best-case scenario valuation 2) it has become WAY TO overweight in our portfolio or 3) In a 7% annual return stock market, we just got 50-100-200 years of profit in less than a year (see NKLA).
We have a LOT of new folks with us...understand this: we are stock market mercenaries. We don't love stocks, we don't hate them (ok a few).
But RISK MANAGEMENT and ringing the cash register is how you get RICH owning stocks OR you are so dialed in and fervently believe in a company like Apple (like many our former ChangeWave subscribers still are since 2017) or Tesla (which I hope to FINALLY put in our portfolio) or Amazon (you are my hero--completely blew AMZN).
We have delivered our subscribers an over 110% annual return since 2013 (including the NEVER AGAIN 420% in 2020) by
A) Identifying and riding the most powerful transformational commercial, corporate, monetary policy, and regulatory waves in the world
B) FOLLOWING our TR Macro Market Timing Index (which today is showing the highest Q1 growth rate of 8.9% in history) as we did on THIS DAY in 2020 to GO TO CASH
3) Understanding the investor psychology of the marginal buyer and seller of stocks
4) TAKING profits and not looking back
5) Using options opportunistically
That 14X outperformance since 2013 does not just happen. We have rules. We follow the rules. We will NEVER sell the top tick of a stock (OK NKLA was DAMN close). But our 20 years of 10X+ market outperformance (ChangeWave Investing and Transformity Investing PRO) works because we have a vastly superior stock-picking system and we actively manage our positions like it's our money--cuz in fact our money is right alongside yours.
Key point: Once we squeeze out the insane froth in the GREAT companies and sectors and see if the bond market and actual inflation expectations get as crazy as the $96 BILLION valuation on Lucid Motors, we will be making sick money in our Ultra Income portfolio and sniping at amazing opportunities in what I have come to call the "2025 Economy" companies.
But look--every six months or so, the stock market is a shit show. It's because it got too exuberant or too pessimistic. The stock market is still a sentiment aka animal spirits measurement machine more than a price discovery mechanism in most cases.
On a personal note: On this exact day in 2020, we went to cash, took amazing profits, and when the stock market priced at the end of civilization, we stepped in and bought energy infrastructure companies and mortgage REITS that were priced for extinction. The rewards were life-changing...and later we bought blown-up companies and up-and-comers like Moderna and Nickola and literally created 70 years of stock market wealth in 9 months.
What most stock market investors do not get is to outperform the stock market, you have to understand it is both a long game and a short game combined. The secret to killing it in stocks or SPACS or options is to know which game you should be playing. Right now we are playing the short game. Others are getting crushed and learning harsh lessons most of us learned in the DotCom mania.
I LOVE manias--I bought two stupid ridiculous homes thanks to stock market manias and traveled to 30+ countries first class for 20 years. But listen--that only happens when you BUY stocks when others won't, buy stocks during a bull market mania, and SELL STOCKS when your mailman tells your FedX guy tells you about the penny stock he just bought (which literally happened last week.)
Sermon over.