10/23 Daily Market Note: Bill Ackman Covers his Short Bet on Bonds, igniting a relief rally in Bonds and Stocks
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Folks,
Welcome back from the Weekend!
One of the core angsts that has been throttling Investor enthusiasm and the real economy is the prevalence of the high-interest rate environments that we are in. My personal estimate is that the 10Y Yield alone is responsible for 1/3 of the recent selloff from SPY ETF’s roundtrip 435 back to 420. The remaining catalysts is due to the Semiconductor ecosystem seeing weaker sentiment from Lam Research and Tesla’s latest earnings outcomes – which disappointed investors who were looking for higher margins and a more upbeat outlook. Today’s session with Yields falling due to famous investor Bill Ackman closing his short-sale bet on Bonds is a first good move, but how the week ends depends on earnings season, which is now in full swing.
Last week, I took a temporary large position in TLT Sell Puts as well as Direct Shares. Long-time members will know that I do not typically like to take concentrated positions because of the large portfolio variance that it will produce. Bill Ackman’s covering of short bonds allowed my position to be greatly benefited, and I’m closing it now with strong intention to re-enter later. I had communicated that I had taken a notch higher to my TLT exposure in last week’s notes, but I’m wary of whether Bill wants to re-enter shorts at better cost basis in the future. Hedge Funds have a strong tendency to move the market and then reposition back into the same trade at better cost basis. Otherwise, there is no need to make such a public announcement in my view. I’m going to close now, book profits, and diversify into other ideas (while keeping TLT on my watchlist for Best Ideas once it revisits a level I like). My methodology of level-to-level trading is something I follow with very few exceptions, even if it means I miss the next leg up. Doesn’t mean I’m bearish, it’s just part of my system.
