Another late trade Oct 4, 2019

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Market Undercurrents:

There are some very disturbing things happening right now in the financial markets that are not getting a lot of press. Because of this and a substantial change in some of the metrics I look at in the past two days, I am going to increase the allocation to fixed income with a late trade again this month.

First the Trades:

The Equal portfolio: The equal account has $1145.36 so I will buy JNK with that money.

The TA portfolio: I will sell 78 shares of VONE and buy as much AGG as I can.

The Enhanced portfolio:  I will sell 76 shares of VONE and buy as much GOVT as I can.

Now the Reason:

The money markets are in distress but no one is talking about it.  Basically there is a shortage of cash which is showing itself in something called the "repo" market.

 In the repo market, borrowers seeking cash offer lenders collateral in the form of safe securities—frequently Treasury bonds—in exchange for a short-term loan. The term of these loans can be as short as overnight.

 The interest rates on Repo's shot temporarily up to 10% on Sept 17th until the Federal Reserve stepped in and offered $50 Billion in cash to banks and others needing overnight money.  Since then they have offered at least $75 Billion per day to keep interest rates near their target rate.  They have committed to do this until Oct 10th at which point they will reevaluate. We don't know the exact amount but rough math puts it near $1 Trillion in stimulus so far.

 This is a huge liquidity stimulus to the economy and no one is talking about it and equity market pricing is ignoring it.  Bonds are a bit distressed by it.  

 What concerns me is the ambivalence the markets are showing to a very large and very real stimulus package. Markets that are running well do not need such help. We have not seen anything like this since the great recession. I believe this is the canary in the coal mine and is a reason to reduce risk.

 I will post the trade details as well as Q3 performance this weekend.

Disclaimer:
Past performance is not a guarantee of future performance.  This strategy is presented for informational purposes only and is not a solicitation to buy or sell any securities. I own all of the securities suggested in all three portfolio's.  October is one of the peculiarly dangerous months to speculate in stocks in.  The others are July, January, September, April, November, May , March, June, December, August and February. ~ Mark Twain

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