Enjoy your family and friends. Have a great long weekend.

                                              The trend is still up, no hedges on.

Sometimes you just have to take profits. Sold most of the stocks into strength.

Recap April 12. ~ No worries.

                                           The trend is still up, no hedges on.

“Canada has not had a credit cycle in a few decades and I don’t think there’s a Canadian bank CEO that knows what a credit cycle really looks like"

“U.S. hedge funds from time to time have appeared in this country over the last 10 years, with the same hypothesis of shorting Canadian banks, and it hasn’t worked out very well for them,” Brian Porter, CEO of the Bank of Nova Scotia, said yesterday. “There are always going to be those that take an opposing view, and we’ll prove them wrong over the long term.” 

Gabriel Dechaine, banking analyst at the National Bank of Canada, likewise came to his industry’s defense in a note today: “A trend that is making us believe that sector sentiment is becoming too bearish is the re-emergence of a vocal ‘short Canada’ investment crowd.” Dechaine writes that a Stanley Cup victory for the woebegone Toronto Maple Leafs (last title, 1967) is more likely than a jump in loan losses.

One well-known investor is publicly taking the challenge: Steve Eisman, portfolio manager at Neuberger Berman and a protagonist in Michael Lewis’ The Big Short. “Canada has not had a credit cycle in a few decades and I don’t think there’s a Canadian bank CEO that knows what a credit cycle really looks like,” Eisman, who is short various Canadian banks and mortgage lenders, fired back in an interview yesterday with BNN Bloomberg television. “I just think psychologically they’re extremely ill prepared.” 

While Canadian bank advocates and their skeptics exchange words, the formerly-white hot housing market is now in deep freeze. March sales in Vancouver collapsed by 31.4% year-over-year according to the local real estate board, the worst showing since 1986 and down 46% from the 10-year average for March. Prices also lurched lower, with the benchmark detached home price falling 10.5% year-over-year to C$1.44 million ($1.08 million). Things are more stable in Toronto, where March sales and benchmark prices were little changed from a year earlier, but those figures remain 40% and 14% below their respective levels from March 2017.

As the housing market sputters, the highly-leveraged Canadian consumer displays increasing signs of distress. According to the Bank for International Settlements, Canada’s household debt stands at 100.2% of GDP as of the end of September, by far the highest ratio among G7 economies (the U.K. is next at 86.5%), while the debt service ratio, or the percentage of disposable income allocated to principal and interest payments, rose to 14.9% in the fourth quarter per Statistics Canada, just shy of the 2007 peak.

That debt burden is starting to weigh on consumers. Auto loan delinquencies rose to 0.97% at year-end according to Equifax, Inc., the highest since 2009. At the same time, 36% of new auto loans in the fourth quarter were leases, the largest such share since 2007.  Bill Johnston, vice president of data and analytics at Equifax Canada Co., noted that “we’re starting to see consumer behavior shift to keep the payments as low as possible.”

On the credit card front, delinquencies of at least 90 days remained at a relatively low 0.79% as of February, down from 0.88% in the same month last year according to data from Bloomberg. But, as noted by the Royal Bank of Canada, consumers cut their average monthly payment to just 38% of outstanding balances in February, down from 50% in October and the lowest such ratio since 2015. RBC credit analyst Vivek Selot commented:

That deterioration in payment rates may be attributed to some stress on the consumer. Considering that fragile household balance sheets could be a precipitating factor for the credit cycle to turn, any signs of consumer credit quality deterioration seem worthy of attention.

Indeed, the Office of the Superintendent of Bankruptcy reports that consumer insolvencies rose 5.4% year-over-year in February, bringing the rolling three-month average to its highest level since 2011.

The slowing housing market and increased consumer stress has taken a toll on one of the banks’ primary profit centers. According to the Bank of Canada, residential mortgage growth registered at 3.2% year-over-year in February, the lowest reading since 2001 and barely half of the 6% monthly average logged since the housing boom gathered steam in 2009. Back in March, Edward Jones & Co. investment strategist Craig Fehr noted to Bloomberg that mortgages frequently represent “the largest and most profitable and steady of the businesses that these banks operate.” Fehr concluded: “The bread and butter of profitability for Canadian banks – is going to have a little less butter on the bread.” Meanwhile, expectations remain high, with a 2019 analyst consensus of 15.7% return on equity for the S&P/TSX Bank Index, up from 14.2% last year and a five year average of 15%." 

Contemplating.

Stocks rallied once again, with the S&P 500 tacking on a 2% gain this week to bring the year-to-date advance to a 15.5%.

"Recap April 4" ~ higher

"Another rangebound session saw the S&P 500 finish higher by 0.2%, near its best levels of the day, while Treasurys also finished little changed with the 10-year yield settling at 2.51%.  Commodities and the dollar both finished higher, with the CRB Index rising for a fifth straight session despite weakness in crude as WTI fell back to $62 a barrel.  The VIX finished below 14." 

They say that it takes 10 years to become an overnight success.

We can compare investing to being an airline pilot: 90% of the job is uneventful to the point of automation, and 10% of the job is terrifying and requires complex skills and a flawlessly calm demeanour. "Nothing happens, then everything happens." Is life really all that different?

We all go through hardships. We all go through stress. But, we also experience periods of relative calm. It’s the shift between these states that make life interesting and at times difficult.

What would life be without struggle and overcoming obstacles? They say that it takes 10 years to become an overnight success. Don’t forget this as you approach each and every day. "Nothing happens, then everything happens." 

"Recap April 1"

"The second quarter started in familiar fashion, as stocks raced higher with the S&P 500 gaining more than 1% and the financials index tacking on nearly 2.5%. Treasury yields likewise ripped higher across the curve, with the 10-year back to 2.5% from less than 2.38% on Wednesday, and commodities also enjoyed a strong rally with the CRB Index gaining 1%.  WTI crude finished near $62 a barrel and is up by 42% from the Dec. 24 lows."

 

SPY, end of quarter.

                                                    The trend is still up, no hedges on.

State of the Market.

                                 What will happen on Monday ?

The trend is still up, no hedges on.

Speculation is what makes the world go around.

Have a select memory; which means:
You have to have an ability to forget the "ones that got away."
You as a trader/investor must have a capacity to overcome mistakes, learn from them and then go on as if they had never happened.
In trading/investing as in almost everything, steady persistence in the right direction, invariably beats erratic brilliance. Be selective. Be steady. Be persistent. And don't forget to enjoy the ride, eventually it ends.

All is well, but for the market to make a new leg up we first need to clear the resistance area.

                                               The trend is still up, no hedges on.

SPY today

                                                The trend is still up, no hedges on.

The process of preparing for different scenarios will allow you to have an actionable plan in place to minimize risks and maximaze opportunities when they come to pass.

Something like this.

"Isolate an event - Assume a specific downside event. For example, what happens if there is an escalation of a trade war with China?

Walk through the implications of the event. What markets will be affected? What will happen to the correlations across these markets? Are the market effects expected consistent with cross-market relationships? What will be the reaction of other investors?

Portfolio review - Can the current portfolio take advantage or mitigate the event? What are the risks from this event?

Analyze the restructuring alternatives that will be effective for hedging against this downside event. Be specific on what you will buy and sell? 

Analyze whether your hedging will meet your return expectations.

Walk through other possible solutions."

From 2018 Berkshire Hathaway annual letter.

The American Tailwind.

On March 11th, it will be 77 years since I first invested in an American business. The year was 1942, I was 11, and I went all in, investing $114.75 I had begun accumulating at age six. What I bought was three shares of Cities Service preferred stock. I had become a capitalist, and it felt good. 

Let’s now travel back through the two 77-year periods that preceded my purchase. That leaves us starting in 1788, a year prior to George Washington’s installation as our first president. Could anyone then have imagined what their new country would accomplish in only three 77-year lifetimes? 

During the two 77-year periods prior to 1942, the United States had grown from four million people – about 1⁄2 of 1% of the world’s population – into the most powerful country on earth. In that spring of 1942, though, it faced a crisis: The U.S. and its allies were suffering heavy losses in a war that we had entered only three months earlier. Bad news arrived daily. 

Despite the alarming headlines, almost all Americans believed on that March 11th that the war would be won. Nor was their optimism limited to that victory. Leaving aside congenital pessimists, Americans believed that their children and generations beyond would live far better lives than they themselves had led. 

The nation’s citizens understood, of course, that the road ahead would not be a smooth ride. It never had been. Early in its history our country was tested by a Civil War that killed 4% of all American males and led President Lincoln to openly ponder whether “a nation so conceived and so dedicated could long endure.” In the 1930s, America suffered through the Great Depression, a punishing period of massive unemployment. 

Nevertheless, in 1942, when I made my purchase, the nation expected post-war growth, a belief that proved to be well-founded. In fact, the nation’s achievements can best be described as breathtaking.

Let’s put numbers to that claim: If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019 (the latest data available before the printing of this letter). That is a gain of 5,288 for 1. Meanwhile, a $1 million investment by a tax-free institution of that time – say, a pension fund or college endowment – would have grown to about $5.3 billion. 

Let me add one additional calculation that I believe will shock you: If that hypothetical institution had paid only 1% of assets annually to various “helpers,” such as investment managers and consultants, its gain would have been cut in half, to $2.65 billion. That’s what happens over 77 years when the 11.8% annual return actually achieved by the S&P 500 is recalculated at a 10.8% rate. 

Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods. That’s 40,000%! Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a worthless currency. To “protect” yourself, you might have eschewed stocks and opted instead to buy 31⁄4 ounces of gold with your $114.75. 

And what would that supposed protection have delivered? You would now have an asset worth about $4,200, less than 1% of what would have been realized from a simple unmanaged investment in American business. The magical metal was no match for the American mettle.

Our country’s almost unbelievable prosperity has been gained in a bipartisan manner. Since 1942, we have had seven Republican presidents and seven Democrats. In the years they served, the country contended at various times with a long period of viral inflation, a 21% prime rate, several controversial and costly wars, the resignation of a president, a pervasive collapse in home values, a paralyzing financial panic and a host of other problems. All engendered scary headlines; all are now history. 

Christopher Wren, architect of St. Paul’s Cathedral, lies buried within that London church. Near his tomb are posted these words of description (translated from Latin): “If you would seek my monument, look around you.” Those skeptical of America’s economic playbook should heed his message. 

In 1788 – to go back to our starting point – there really wasn’t much here except for a small band of ambitious people and an embryonic governing framework aimed at turning their dreams into reality. Today, the Federal Reserve estimates our household wealth at $108 trillion, an amount almost impossible to comprehend. 

Remember, earlier in this letter, how I described retained earnings as having been the key to Berkshire’s prosperity? So it has been with America. In the nation’s accounting, the comparable item is labeled “savings.” And save we have. If our forefathers had instead consumed all they produced, there would have been no investment, no productivity gains and no leap in living standards.

Watch an actual long-only stock portfolios hedging system.

 The trend is up, no hedges on.

The market changed behaviour at the start of the day on Tuesday as volume and price action dried up suggesting there are no buyers at this level right now. Maybe China negotiations that are due to be completed March 1st or the possibility the President Trump will add another tariff to imported Chinese goods could be holding back the market. That or just resistance at a prior high area on the S&P-500

CME Fed Futures Rate Hike Odds

'The CME Fed Futures puts the greatest odds all the way out to January 2020 that interest rates will remain the same, though there are also odds that when rates do move, they will move lower, as futures puts 22.6% odds this will happen by January 2020, vs 0.8% odds of a hike by the same month. Odds prior to Thursday’s retail sales data were about even between a hike and a drop in rates.' 

SPY now

The trend is up, no hedges.

Look at things as they are...

Look at things as they are, not as your emotions color them. In strategy, you must see your emotional responses to events as a kind of disease that must be remedied. Fear will make you overestimate the enemy and act too defensively. Anger and impatience will draw you into rash actions that will cut off your options. Overconfidence, particularly as a result of success, will make you go too far. Love and affection will blind you to the treacherous maneuvers of those apparently on your side. Even the subtlest gradations of these emotions can color the way you look at events. The only remedy is to be aware that the pull of emotion is inevitable, to notice it when it is happening, and to compensate for it. When you have success, be extra wary. When you are angry, take no action. When you are fearful, know you are going to exaggerate the dangers you face. War demands the utmost in realism, seeing things as they are. The more you can limit or compensate for your emotional responses, the closer you will come to this ideal. ~ The 33 Strategies of War by Robert Greene