Warning: Our Proprietary TR Macro Market Time Recession Index Is Just A VERY Small Move Away from Calling ANOTHER Recession (like it has successfully done since 1989).
Hey Subscriber,
For those of you who have not been with me since the 2000 launch of my ChangeWave Investing service, I can say this: out of all the new homes bought, college tuitions paid and well-funded retirements (early and normal) from our tech stocks and energy stocks,with 500%-3500% capital gains 2000-2008, the most value I think we brought our subscribers was going to cash/short in March 2000 and cash/short again March 2008.
And of course, for our current TR Investing crew, going cash/short Feb 2020 and buying back energy and tech stocks down 75-90% in April 2020 will also go down in our market calling history book.
Key Point: Since really January this year, we have been beating the drum to our subscribers that we had gone very defensive and built a LOT of cash in our managed accounts (by closing out most Ultra Growth positions) and relying on our energy plays to ward off the inevitable crash of the Crazy FOMO YOLO 50X revenue valued mania stocks (driven by the removal of the $8 trillion of cash creation/monetary stimulus from America's Federal Reserve unlimited free money policy aka "Oprah Money").
When the Fed came clean last December 15 2021 and told us "oops...did we say "transitory inflation" and later last week "Yes on March 16 we will start raising Fed Funds .25% every meeting and start selling off our $9 trillion balance sheet of US Treasury bonds and mortgage-backed securities as 7% YOY inflation will last a LOT longer than we forecast" . . .
. . . what they meant in Wall Street lingo means "Yea...we FFFed up...we are behind the inflation curve and our inflation control mandate says we gotta get busy raising rates and start "quantitative monetary tightening" aka selling off our $9 trillion balance sheet stuffed with US Treasury bonds that we bought to finance the Federal Governments pandemic check-a-thon ("You get a check--and you get a check").
And now, with a madman in Russia holding 6000 nuclear warheads and convinced that God told him his calling in life is to restore Russia to its former greatness starting with repatriating Ukraine, the proverbial "black swan" event (aka unforeseen negative economic event) has hit the world right after the pandemic black swan event started slowing down while AT THE SAME TIME the ACTUAL most powerful economic entity in history (the US Federal Reserve Bank) has made a terrible policy mistake that they can no longer deny.
SOOO my friends...with a historic war in Europe that could, unfortunately, metastasize into something far worse with the click of a button or malfunction of a single missile, let me make this reality as clear as I can:
1) The Fed can't come to the rescue of the stock market (virtually every major stock index is in/near 20% down bear market meltdowns) with 7.9% inflation (and that reading was BEFORE Russia--the bread basket and energy source of Europe--invaded Ukraine--the OTHER global source of wheat and corn and fertilizer weeks before Spring planting is to begin)
2) The Fed can't come to the rescue of the bond market with "quantitative easing" (the 10-year bond interest rates have shot up from 1.45% to 2.225% yield in 20 days???) because they, the marginal (aka price-insensitive) buyer of Treasury bonds for the last 24 months, have NOW become the marginal SELLER of $8 trillion of Federal Government debt into a world consumed with a still existing pandemic and now a real threat of WWIII
3) The Federal Government can't send economic stimulus checks out to every American over 18 because the Fed can't make up more new money for the Federal Government to mail out while they are SELLING $8 trillion of money they created out of thin air.
In other words, the Oprah Economy is over, the FOMO/YOLO stock trading insanity seems to have moved to our energy trust positions, and pretty soon getting a 3% yield from the 10-year bond is going to be a lot more attractive than a 20% loss on most stocks.
Oh, yea and then there is this...
Our Macro Market Recession Indicator is a Whisker Away for our Next Recession/Bear Market Call (can you tell I have a calming cat on my lap as I type this?)
Our proprietary MMR Index is15.1--which means we are two ticks away from making a recession call 4-6 months in the future.
Oncoming recessions mean full-on bear markets (in this case the Dow and SP500 added to Nasdaq/QQQs already in a bear market).
US Bear Markets ALWAYS PRECEDE US economic recessions by 4-6 months--you know that "the US stock market looks forward and discounts the US economy by 4-6 months" thang.
And now--Federal Reserves' "GDP NOW" indicator (of which we use for 35% of our index) is one tick away from recession territory too.
Don't shoot the messenger...we have given you a LOT OF WARNING before the Ukraine invasion that the Fed could no longer prop up the stock market AND use its "tools" to tamp down 7.9% inflation.
What no one else factored into 2022 was an invasion of the second biggest exporter of wheat and corn and many other important commodities in the world by the LARGEST exporter of wheat and corn and 12th largest exporters of oil and natural gas in the world.
So again don't shoo the messenger but here is the stock market and economic reality today.
1) The Fed's "tools" can't do a bloody thing about impending food riots in third-world countries (remember the Arab Spring?).
2) The Fed's tools can't open Shenzen and other major manufacturing hubs and supply chains out of China now closed by the massive outbreak of Omicron infections in China (hey did you think of that BEFORE hosting the Olympics??).
3) The Fed can't gin up another round of $3000 checks to every breathing American adult.
4) Most of the 55 million new "investors" with SoFi and Robinhood accounts have been blown up just like the Dot Com folks in the Dot Com crash 2000-2003 and trust me most are cursing the Boomers for ffffing up their financial lives again
5) There IS NOT FED STOCK MARKET PUT aka the Fed rushing in to buy stock indexes to prop up the stock market at the SAME TIME they are selling $8 trillion of bonds to "fight inflation."
In short, the global economies were still on the ropes from pandemic issues when another fighter jumped in the ring and started punching us while we were already down.
And it did not help to hear the National Director of National Intelligence tell congress last week that "Moscow has not put its nation's nuclear forces on high alert since the 60's" or Putin expert Fiona Hills tell us that "The thing about Putin is, if he has an instrument, he wants to use it."
What Are We Advising You and Our Managed Account Clients?
1) Now is NOT THE TIME YET to be brave like we were in April 2020. We are now 60% in cash in managed accounts and 40% of our Ultra Income investments with 10% ish sell stops on all positions because as IN a rip your face off bear market short converting after a 12 year Fed based bull market, money managers sell what they have profit in they wash what they sold at a loss.
2) We have put tight sell stops under ALL our few remaining Ultra Growth plays as the last stand of a full-on SP 500 bear market (The Nasdaq Index and QQQ's are already down 22%) is the strongest stocks of the bull market run get sold (aka as Mega-Tech).
Here is what I posted to the All-Access members this morning:
" FYI we have sell stops on ALL big profit positions and remaining Ultra Growth stocks we still hold ...because as we have emphasized this year but especially after the invasion...it is almost impossible to make a MACRO case for being long most stocks right now (except commodity shortage beneficiaries at below 10 p/e's and healthcare stocks) with 7%+ inflation now guaranteed for all of 2022 (when you add in the energy and food inflation from Russian boycotts and Ukraine prolly missing extensive Spring planting season).
China's big industrial regions shut down AGAIN which means more supply chain problems...
... 10-year T-note yield up 22.7% since March...while the Fed is raising short term rates at LEAST at every meeting in 2022--and is SELLING $billions of Treasury bonds now every day which takes the world's marginal buyer of US Treasury bonds OUT of the market.
The PRIMARY signal of a recession-based bear market is the slow destruction of Mega Cap winners and the speculative crypto bubble...all of which we and other money managers are selling on those rip-your-face-off short-covering rallies that will come on good news on Ukraine invasion.
But unless we see a magical and highly unlikely "kumbaya" moment where Russia pulls back and agrees to pay reparations... and the Fed decides to hold off on quantitative tightening tomorrow (almost zero odds of that)...Covid outbreaks via variants continue...AND the coup de grace is $6 a gallon gasoline continues through Summer and Fall which is actually disinflationary to GDP (takes money out of the hands of the bottom 60% of American households ranked by income).
And what about the "Fed Put" ie the proverbial stock market support mechanism where the Fed steps in and takes down rates/pumps $trillion of liquidity into the monetary system and/or actually buys SP 500 Index funds as a last resort?
Well friend--THE FED PUT is CAPUT...and the reverse wealth effect is already hitting the investor class...today 8% of US homes are worth more than $1M...good luck with that valuation when mortgage rates double and to go back up over 6%!
In short, the $8 trillion of free money pumped into the US monetary system starting in 2010 and ending in 2022 has run out...the Fed did not of course anticipate a back-to-back 2-year global pandemic nor a major war in Ukraine with a Russian invasion.
But here is the real issue: IF the Fed does NOT DO what it HAS to do now to fight embedded inflation, then the Fed loses credibility with the foreign bond buyers and the global bond market in general who are NOW (in the absence of the Fed) are the marginal buyers of American Treasury bonds.
If that loss of faith happens, the US bond rates soar (bond rates go up when bond prices go down) and the US dollar drops in value and oil prices go UP even more (yo--when the U.S. dollar is strong, you need fewer U.S. dollars to buy a barrel of oil. When the U.S. dollar is weak, the price of oil is higher in dollar terms)...and the inflation cycle accelerates...
Net Net? In this scenario, we are set up for the 1970's stagflation all over again (a 7-year bear market for stocks as inflation roared until Fed Chairman Volker raised the Fed Funds rate to 21%!!).
Really Key Point: We currently are NOT forecasting Stagflation 2.0--but the risk is VERY REAL and if the Fed ffff's up their monetary policy and has to go FULL PAUL VOLKER to get the inflation genie back in the bottle...stagflation is the most like scenario.
So on that note--it's time to break open a great bottle of wine...celebrate the AMAZING amount of new wealth we have created in the last 10 years and make sure you are positioned to KEEP THAT WEALTH intact.
Got it? There will be some new stocks to add to the energy space...but betting your wealth on Putin coming to "his senses" is NOT the bet I would make with my money, our client's money, or your money.
As I have said 100 times--if you have been with us from 2020 to tonight--and followed half of what we advised buying...you earned 50 YEARS of stock market wealth in 24 months. Why put anything but a small portion at risk now with the Mother of All Black Swan Events reeling the globe and the US Economy.
In short, in the business of investing your wealth in stocks, there IS a time to be brave and greedy and a time to NOT BE greedy. With at least the 6-8 undefinable economic and geopolitical transformations in the world and US economy listed above ALL hitting the stock market at the same time, the risk vs. reward equation is not in favor of the brave.
The risk-reward equation today favors the smart and experienced . . .
. . . don't ffff up all the amazing profits you have gained in the last 10 years by being 100% exposed to stock market risk in this hurricane of economic risks.
THERE WILL be a time to be brave...there always is...but right there is literally NO WAY to access the odds of success and failure with any certainty.
Yours truly,
Toby (the money manager 85% in cash up 36% this year with Nasdaq down 23%.
We are also making some stupid money on our All-Access option trades SHORTING stocks like COUP this week...SNOW last week...$RSX week before with up to 2300% profits.
We are Adding 5 more corporate software put options as March earnings season wears on with another COUP/SNOW/DOCU 30-50% destruction.
We sold our $85 COUP put options at the open spike lower yesterday with 900-1400% ish profits
Really Key Point: It is NOT TOO LATE to make stupid money on SaaS put options and portfolio hedges--click here and scroll down to the bottom of the membership page and join All-Access trading room.)
And soon it WILL BE time to be brave and make 200-300% profits in great growth companies at 75% lower prices.
Will you be ready?
All the best,
Tobin Smith CIO of Tranformity Research and Transformity Wealth Management LLC