Investment Strategy and Education: Preparing and Positioning for the Debt Ceiling Fiasco
Mid-Month May Investment Strategy Report: Portfolio Positioning & Education for the Debt Ceiling and Beyond
Note: This note includes timeless valuable Investor Education as well as Portfolio Strategy in conjunction with researched observations on the U.S. Debt Ceiling issue. A thoughtful preview has been provided for Public Friends. Make sure to be on my list here if you’re not yet on it already.
Members,
Happy Mother’s Day to the good folks this weekend, and hope you spend some quality time with Mom.
In this Strat Note, I’ll be going over a recap of market conditions based on my observations so far and discuss opportunities that could be potentially emerging as volatility re-appears due to the looming Debt Ceiling.
Let’s first talk about what’s working so far in my favor, and what’s been adverse to my opinions.
Going in my favor:
On China: Using BABA as a proxy, we talked about China as a sector being a tradable Buy when it neared the 80 region (and when JD was at 32-33). After JD’s earnings outcome, we saw BABA/JD bounce up to 10% from its swing lows to 88 and 37 respectively. For Traders, this was an excellent level-to-level call and did the job as planned. For Investors, they are once again dismayed by the gains being suddenly reversed just 24 hours later in the Friday session. Given that I trade the sector, I don’t mind these reversals, and I simply look for the next setup.
On Banking: I viewed Banking as a short window for a bounce back on May 4th as several Financial names that I watch closely hit Oversold metrics that I observe. That played out nicely as well with names like AXP and IBKR bouncing 6-7%, followed by the sector dipping after we exited the bounce.
On thrift shop Dollar Tree (among others): One of my longer-term ideas which has been shared extensively with the folks is the concept that Consumers will have to trade down their consumption patterns. And that Dollar Tree, Walmart and Dollar General would be beneficiaries of this changing landscape. With quite low volatility, DLTR not only given investors a good return but also a high sharpe ratio as well.
Travel Theme Marriott: In a recent tactical note to members, I wrote that I believed the shift in spending away from big ticket items like Real Estate and Cars would be beneficial to travel and experiences consumption. I viewed Marriott as a trading Buy opinion at 169 and it tested 183 post-earnings.
Going against my favor:
Inflation Themes CF Industries and Mosaic: With inflation data like PPI and global commodities coming under pressure due to demand concerns, stocks that are proxies to that context have taken quite the heat. Previously guided as an intermediate-term idea at 80 and 45 respectively in early 2023, these two names gained 10%-15% from those levels to reach 90 and 55 before retracing all those gains and more. Now they trade 67 and 35, much to my dismay given that I never sold them. In hindsight, I should have discussed this as a Trade (which worked) rather than as an Investment (which did not).
Oil & Commodities Oriented Themes: Similar to the Inflation theme above, Oil and Commodity stocks have soured due to weak demand sentiment. The previous OPEC cut by the Saudis did little to sustainably support the sector, and it appears that the Oil names may be under pressure for sometime before Investors re-accumulate this sector.
With the Debt Ceiling looming, I want to talk about ways to prepare for this potential problem in a very straight forward and pragmatic way. We’re going to look at historical data points as to what has happened during closely mirrored episodes to guide our decision making.
I will also briefly touch on tools such as Valuation methods and Portfolio Construction to help the folks here use objective frameworks once heat re-enters the market.
A situation that I expect to come back sooner rather than later.
Read on, prepare now. A special incentive has been provided to help the good folks navigate this coming Debt Ceiling crisis with our globally accessible entry points.