Fall is upon us and I need to set aside some time to read. I’m way behind and already see several new releases looming in my Amazon account that will be hitting the Kindle soon.
You can’t underestimate or put a price on “continuing education” in financial circles. I prefer the term “perspective” to education but the ultimate destination and end goal is the same.
“What was the last book you read and why?” was always my favorite interview question and it was usually followed by some advice we should all heed including myself: “If you aren’t getting better, you are getting worse by default”. Food for thought.
Less time to read because the market has had my antennas up lately, occupying more of my attention. Things are getting interesting as we all start to digest what higher for longer really means.
Up until to now it has been talk, speculation. With 10yr yields hitting 4.49% and 30 yr mortgages knocking on 8% suffice it to say: it is starting to hit home.
My HELOC with my local credit union had been pegged at 5.5%, well below prime and trust me I didn’t ask any questions, I appreciated the low cost of flexibility. The email hit my inbox yesterday announcing a reset to 7.5%, still well below prime but 200bps above what I was used to. Nothing lasts forever.
I’m still in the interest only “draw period” on my HELOC so I have used it pretty sparingly for household needs and projects over the last several years. Perhaps going forward I will need to rethink it.
I would imagine the whole rethink it theme is filtering its way through the fabric of America as we speak. Do we need that now? Will it be cheaper later? Let’s hold off for a bit.
Credit card delinquencies are on the rise, in tandem with overall outstanding balances recently surpassing One Trillion. This never ends well.
Higher for longer means car buyers are going to pay out the waz, home buyers are just screwed altogether.
If you have a mortgage under 4% and the vehicles are paid for, chances are you are dug in like an Alabama tick. I certainly know I am. It will be interesting to watch as we enter the holiday season how things holds up.
To the charts.
The tides have turned this week. The Fed stood down on rates as expected but we are having a little bit of post Fed hangover it would seem. We are still swimming in my previously outlined range between 460 and the unfilled gap at 423 but the uptrend has officially Audi 5’d:
Same chart, without any of my own lines:
Bearish no matter how you frame it up, all support levels are broken and technically it be ugly. Uglier after Friday’s close which was lower than Thursday’s. When charts get “broken” like this it usually takes several weeks if not months to play out.
I will remind the longer-term players this is healthy, and not unexpected in September as we roll into Q4 as long as it doesn’t accelerate. I will remind shorter-term players to stay small and stay nimble, you are going to be caught in the washing machine for a while.
The VIX has perked up but already started to tick lower Friday as if to say “nah, this drop is really nothing”. We’ll see Monday and see if SPY can muster a close or two above the lows of this week.
The Mental Game
I want to take a moment to discuss the mental aspect of trading/investing. I underestimated this for years and it really bit me in the ass a few times.
If you don’t think anything is possible, remember at one point crude oil printed a negative bid in the not so distant past. NEGATIVE. They would pay you to take delivery of a barrel of oil. How is that even possible?
Well it is possible my friend, anything is possible. I was on the wrong side of some oil related investments that fateful weekend and woke up Monday to a bloodbath. Nothing I could do about it, it was too late, the damage was done.
I remember how mad I was because it seemed broken to me, it seemed unfair. When you take a big loss you will go through all the emotions. In the end, regardless of what truly happened nobody forced me to make those investments. I made a choice. I assumed the risk. I didn’t fully take into consideration what could happen.
Here is a more recent more humorous example.
When I see a potential stock I like, there is a process I go through to vet it out. I won’t get into those weeds here, but it is lengthy. A stock may be on my watch list for months or even years before I pull the trigger. I have to justify the purchase and the price paid. I will only own 3 or 4 individual stocks at one time so the conviction must be extremely high.
Earlier this week I finally pulled the trigger on a well vetted company that I felt was poised to trade higher. It was going to be a longer-term hold for me, at least unless I was stopped out at my maximum allowable loss should it move lower.
One day later, exactly 24 hours after I made the purchase I received an alert on my phone it had been sold. What?! Already ?! When I returned to my desk I discovered a research firm had put a strong sell recommendation on it due to “questionable accounting practices“.
Well that’s just great. All I could do was laugh and shake my head. What a fantastic stock picker you are Charlie Brown. Better get busy finding the next fraud to throw money at!
Bottom line is you can only control what you can control. The market will humble you quickly if you don’t follow your own rules. In this case my stop loss made the sell decision for me, at a level I pre-determined. What caused the drop was irrelevant, no reason to worry about it now. Cut bait and move on.
For the record I still like the company and will leave it on my watch list. Who knows I may later find out there is nothing shady at all and buy it cheaper because of this nonsense hit piece. Time will tell but for now I am moving on.
We may be in for a bumpy ride as Mr. Market tries to accurately price in higher for longer and the recession odds in the months ahead.
Try to keep your emotions out of it, I know easier said than done.
Take it all with a grain of salt, stick to long-term plans and strategies and by all means tune out the noise!
When I find myself getting worked up or upset about things I can’t control it’s time to do something else. Get outside, take a walk.
Happy Fall…
The Finance Stance 