Sunday, April 8, 2018

4/8/2018 Potential Sector Trade

The Sector Model should sell XLE and buy XLI in the morning, unless there is an unfavorable gap.

*A gap would be neutral or favorable if XLE went up while XLI went down in comparison.  An unfavorable gap would be the reverse -- if XLE went down in relation to XLI before the trade.

Sunday, March 11, 2018

3/11/2018 Weekend Update -- just the numbers

Sector Model
XLE
2.13%
Full Model
Date
Return
Days
BT
8/11/2015
-49.43%
943
TMK
11/23/2015
47.04%
839
NVR
12/16/2015
84.30%
816
CMP
2/19/2016
-0.37%
751
NVR
2/22/2016
92.07%
748
AMWD
3/17/2016
78.13%
724
CASY
5/12/2016
-1.51%
668
AEM
6/7/2016
-21.04%
642
ESRX
6/13/2016
6.38%
636
AMED
6/16/2016
20.92%
633
FRO
6/27/2016
-38.56%
622
ASTE
7/12/2016
3.71%
607
MFC
9/1/2016
47.24%
556
SFM
9/8/2016
28.20%
549
CFFN
9/12/2016
0.73%
545
FOSL
5/11/2017
-12.95%
304
HIBB
7/25/2017
74.43%
229
FOSL
7/27/2017
13.86%
227
HZO
8/1/2017
42.42%
222
CMPR
12/27/2017
43.25%
74
(Since 5/31/2011)
S&P
Annualized
11.35%
Sector Model
Annualized
15.23%
Full Model
Annualized
14.69%
S&P
Total
107.31%
Sector Model
Total
161.36%
Full Model
Total
153.26%
Sector Model
Advantage
3.87%
Full Model
Advantage
3.34%
Previous
2018
S&P
98.38%
4.50%
Sector Model
172.95%
-0.16%
Full Model
145.63%
3.11%


No comment for the week.  Just the numbers.  But I got a suggestion the other day to create a reference page to explain the model and some terms I use in my posts, and I plan to do so this week.

Tim






Sunday, March 4, 2018

3/4/2018 Trump Stage 2; the good, the bad, and the ugly

Sector Model
XLP
-1.17%
Full Model
Date
Return
Days
BT
8/11/2015
-50.27%
936
TMK
11/23/2015
39.67%
832
NVR
12/16/2015
74.84%
809
CMP
2/19/2016
-5.01%
744
NVR
2/22/2016
82.21%
741
AMWD
3/17/2016
88.15%
717
CASY
5/12/2016
-0.78%
661
AEM
6/7/2016
-22.92%
635
ESRX
6/13/2016
-1.50%
629
AMED
6/16/2016
16.16%
626
FRO
6/27/2016
-43.21%
615
ASTE
7/12/2016
-1.40%
600
MFC
9/1/2016
44.82%
549
SFM
9/8/2016
30.28%
542
CFFN
9/12/2016
-2.59%
538
FOSL
5/11/2017
-4.43%
297
HIBB
7/25/2017
89.31%
222
FOSL
7/27/2017
25.00%
220
HZO
8/1/2017
38.38%
215
CMPR
12/27/2017
34.61%
67
(Since 5/31/2011)
S&P
Annualized
10.80%
Sector Model
Annualized
14.89%
Full Model
Annualized
14.51%
S&P
Total
100.03%
Sector Model
Total
155.63%
Full Model
Total
149.84%
Sector Model
Advantage
4.09%
Full Model
Advantage
3.71%
Previous
2018
S&P
98.38%
0.83%
Sector Model
172.95%
-2.34%
Full Model
145.63%
1.71%


The Full Model is once again close to parity with the Sector Model, and the ultimate goal is for it to pull ahead.  The Sector Model is, and always has been, a benchmark to beat.

So much for the model.  What of the market?  The recent skittishness over tariffs needs some mention.

First, it’s premature.  Nothing has been written or put in place, yet.  The President has a habit of speaking before things are ready.  But the tariffs certainly are one of the few matters he has been consistent about for the past 30 years.  If he has anything to do with his own Presidency – there will certainly be tariffs.

We are now, therefore, entering stage 2 of his Presidency.

I’ve made two broad statements about a Trump Presidency.  The first was that his vision of mass deportation and tariffs could, if both taken suddenly and to their full extent, trigger a global depression:


That was August 2015; before we had heard all of his campaign promises.

When Trump was elected the following year, I made a somewhat more nuanced statement – that his stated promises were both good and bad, with the good coming before the bad:


I concluded that note with this: “The first two years will likely focus on the pro-growth agenda Trump and Ryan agree on.  After that, it will be a contest between Trump’s bad ideas and Ryan’s good ones.  Who wins that contest remains to be seen – but Trump doesn’t like to lose.

The good ideas are to cut taxes and regulations.  Both Trump and Ryan were in favor of these positives for the economy, and they carried them through.

The bad ideas are Trump’s opposition to reforming entitlements, his opposition to an immigration compromise, and his opposition to free trade.

First, entitlements.  If you cut taxes you will cut revenue.  To make that work you have to cut entitlements.  If you don’t cut entitlements you blow up the budget, double deficit spending, and create inflation.  The Fed is already struggling with raising interest rates ahead of inflation now.  The inflation hasn’t hit yet, but once it hits in a year or two it will be difficult to control.  By that time the next Presidential election will either be over or close.  If it hits after the election Trump could win re-election.  If it hits close to the election Trump could still win re-election.  By that time inflation will be baked into the cake.

Second, immigration reform.  Regardless of what we think of immigrants, they do work, and are a net plus in the economy.  Cut workers and consumers and you cut the economy.  Doesn’t matter whether you are a supply sider or a demand sider.  The economics is the same: less workers and consumers, less economic growth.  Deport them fast enough and you can create an economic contraction right when inflation kicks in.

Remember stag-flation?

Yeah, Carter.

But it gets worse:

There’s also that final nail in the coffin – Trump’s new tariff toy.  It seems that a President doesn’t need congress to raise tariffs.

Tariffs are a tax on you.  If he raises a 25% tariff on steel, then you, dear American consumer, pay 25% more for steel.

A tariff is basically the same as the government sending an agent to any business offering a sale, and arbitrarily collecting what you could have saved on the sale.  Imagine a Joe Furniture Spring Sale of 25% off all merchandise.  You drive across town, and find that although the furniture really is on sale, you don’t get to save any more because the government is charging you the difference.  So that 1000 dollar table you thought you could get for 750 dollars you still have to pay 1000 dollars for.

But won’t that help local steel workers?

Yes, but for every steel manufacturer who benefits, three other companies that make goods with steel will suffer.

George W. Bush tried a tariff on steel in 2002 and had to rescind it after 21 months had passed and Americans had lost 800,000 jobs.

But there is a darker history than 2002.  There is also 1930:


Remember the great depression?

Want to make depression great again?

I don’t.

So why are we playing around with tariffs?  Why are we all wanting to “wait and see” how it turns out?  If we survive unscathed it won’t be because of the tariffs, but in spite of them.

So now we enter Trump stage 2.  Stage 1 went as I expected; positive moves on regulation and tax reform.

We’ve had the good.

Now for the bad and ugly.

Tim


 PS -- unless there is a negative gap tomorrow, I plan to sell XLP and buy XLE on the sector model.