Why I Sold All My Stocks Yesterday

I’m probably too early, but I wanted time to watch and reflect. September 20, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Why I Sold All My Stocks Yesterday SEAN RING It’s been a helluva run. From May 2023 until Wednesday, my portfolio went on an insane tear, and I’m thrilled with the results. Wednesday, which, in time, may be remembered as the day Jay Powell panicked the markets into a tailspin, made me reconsider my position to stay long stocks. Even after yesterday’s rally, I’m unsure if this run has much more to give now. But don’t be surprised if I write that I’m long the market next week. Let me explain. Captain Kirk Backs Off One of my favorite movies is Star Trek VI: The Undiscovered Country. [During the climactic space battle]( Captain Kirk and the crew of the Enterprise face General Chang, played by the legendary Christopher Plummer, who is attacking them from a cloaked Klingon Bird-of-Prey that can fire while invisible. Chang taunts Kirk and continuously fires on the Enterprise, putting the ship in a dire situation. Knowing they can't pinpoint Chang's location for a counterattack, Kirk decides to change tactics. He orders the Enterprise to stop evasive maneuvers and back off, slowing down the ship. [Enterprise-A bridge] CHANG (on intercom): I can see you, Kirk. KIRK: Chang! CHANG (on intercom): Can you see me? [Bird-of-Prey bridge] CHANG: Oh, now, be honest, Captain. Warrior to warrior... [Enterprise-A bridge] CHANG (on intercom): You do prefer it this way, don't you? As it was meant to be. ...No peace in our time. 'Once more unto the breach, dear friends.' [Bird-of-Prey bridge] CHANG (OC): (in Klingonese) Fire! [Enterprise-A bridge] McCOY: This is fun. KIRK: Reverse engines! All astern! One-half impulse power. Back off! Back off! [Bird-of-Prey bridge] CHANG: (in Klingonese) What's she doing? [Enterprise-A bridge] KIRK: What's she waiting for? SPOCK: Probably trying to ascertain why we are reversing, wondering whether we detect her. The unorthodox strategy momentarily confuses Chang, who expects Kirk to keep fighting and dodging. This moment of tactical restraint from Kirk helps to level the playing field, ultimately leading to the successful targeting and destruction of Chang's ship. I’m hoping getting out and taking a breath will give me the clarity I need to either happily stay out… or quickly jump back in. But before I get into the “why,” let me show you what listening to my fellow friends and colleagues at Paradigm Press has done to my portfolio over the past year or so: Source: Sean Ring Since the trough of my portfolio in May 2023, I’ve achieved a cumulative return of nearly 175%. That annualizes to 114.61%, as per the chart. I started making changes in November 2023, and you can see the separation from the S&P 500’s performance almost immediately. I must thank my Retirement Lord and Savior Ray Blanco, Options Optimist Alan Knuckman, and Ace Rock Kicker Byron King and the rest of the Rickards franchise (Jim, Dan, and Zach), along with the rest of our team, for this amazing bounty. I’m grateful beyond measure. So what spooked me? [NOW STREAMING: Jim Rickards Emergency Election Briefing]( [Jim Rickards believes Donald J. Trump will win the 2024 election.]( If he's right, the next coming weeks could be complete and utter chaos in the markets. [Click here now to prepare NOW]( After the Cut, Yields Rise? If you’re new to the Rude, you may not know I cut my teeth on Wall Street and in the City of London in fixed income. I wasn’t an equity trader. Fixed income is an umbrella term that covers any sort of debt. In fact, it’s a synonym for debt and bonds. If you see “FICC,” that stands for “Fixed Income, Currencies, and Commodities” because Wall Street groups them together for their macroeconomic importance and relationship with interest rates. Fixed income people are much more concerned with the macroeconomic outlook and getting their money back than with outsized gains on lucky stock picks. (Ray Blanco, you stay lucky, pal!) Bond traders are miserable people compared to their compadres that trade stock. Stock traders get lucky. Often. Bond traders almost never do. Something really scared the bejesus out of me when Jay Powell cut the other day. And it wasn’t just the size of the cut, which indicated to me that he’s seeing something I, and the most of the rest of the market, isn’t seeing. Yields actually rose. For context, any interest rate (or yield) can be broken down into the risk-free rate plus a risk premium. In our case, the risk-free rate is the US Treasury yield. The risk premium includes things like credit risk, liquidity risk, and maturity risk, among others. In theory, when the central bank cuts rates, the treasury yield comes down, and, hence, interest rates come down. But it times of market stress, central banks can cut rates, but the overall yield rises. That’s because the risk premium increases. When’s the last time yields rose as the Fed cut rates? October 2008. Lehman. But The Charts are Still Bullish The S&P 500 closed at an all-time high yesterday. It’s not the most convincing candle, but it’s an all-time high. That’s not indicative of a bear market. But here’s the thing: Market dislocations start in the fixed income markets and end in the equity markets. I may be well out in front of the curve; I accept that. But Jay Powell himself alerted me to something that’s wrong with his 50 basis point cut. Otherwise, I might not have seen it. Rebalancing My Portfolio Also, one of the blessings of a Ray Blanco runner is that it takes up a lot of your portfolio. ASTS, and VKTX before it, went on such tears that at different points they made up nearly 50% of my portfolio. So taking profit on those positions while thinking of rebalancing my portfolio might do me some good. I even sold PLTR! It’s not that it’s not performing; quite the opposite. But if the market risk is getting large enough to overwhelm even the most loved stocks, it’s silly to stay in. Get out. You can always buy them back later. Also, I’m still bullish on PLTR even though I sold it. You can see below, PLTR is the best performing pick of the Vegas Whisk(e)y Bar. Source: Chris Harris Wrap Up For now, I’m out. The fixed income markets are telling me something’s wrong. The equity markets are, as yet, unaware of any dislocation. That’s fine. I just need a break. It’s been an amazing 17 months. I’ll see how I feel next week. Have a wonderful weekend. All the best, Sean Ring Editor, Rude Awakening X (formerly Twitter): [@seaniechaos]( Rate this email Like Dislike Thanks for rating this content! Looks like something went wrong. Please try to rate again. In Case You Missed It… PANIC SEAN RING I almost titled this piece “Mea Culpa II” because it’s the second time I’ve had to eat crow this year. [The first time was in June]( when I thought Jay Powell would act early and decisively by cutting 25 bps during the June FOMC powwow. I was crushed when he didn’t, as I thought, and still think, it would have been the right move. But this time, old Jay Pow caught me out by cutting the Federal Funds rate by 50 basis points, or 0.5%. When I found out, you could’ve knocked me over with a feather. I had a face like a beaten favorite. Only two hours earlier, I told my star student in Frankfurt that Powell wouldn’t cut 50 bps the first time into a cutting cycle. I told him the CME FedWatch Tool had no predictive value and changed its tune every few minutes. Boy, was I wrong this time! I was having dinner with my friends S and J when the news came over the wire. FOMC cuts 50 basis points! “Fifty? WTF? I don’t believe it…” was my reaction. My bewilderment was palpable. Jay Powell didn’t start the hiking cycle in 2021 like he should have; he started it a year late in 2022. Then, he hiked too big all throughout 2022. Now, he’s cutting bigly the first time around in 2024? He should’ve started cutting much sooner, so I guess he’s making up for lost time. I think Jay Powell is panicking. He watched the economy deteriorate to the point he thought he needed to get out the hacksaw. Rickards’ Call I often agree with our macro expert, Jim Rickards, and this time, I thought his logic was flawless. From yesterday’s [Paradigm Pressroom’s Five Bullets]( (bolds mine): “We’re sticking with our 0.25% forecast for three reasons,” says Paradigm’s macro expert Jim Rickards. “The first is that this is the no-drama Fed. They’re definitely cutting rates, but they don’t want to appear panicky or to suggest the economy is worse off than they admit. Far from providing ‘stimulus,’ a 0.50% rate cut may signal recession fears and lead to a stock sell-off. “The second reason is the election itself,” Jim adds. “Delivering a rate cut just six weeks before the presidential election would appear to favor Harris and work to Trump’s disadvantage. “Still, the economy is showing signs of slowing,” he says. “A 0.25% cut will give Harris and the economy a boost (so they believe) without being too blatant. “The third reason is that more rate cuts are on the way. Third-quarter GDP growth looks healthy, at least according to the Atlanta Fed GDPNow tracker, which estimates 3% growth. “The Fed has two more scheduled meetings this year in November and December and will likely cut rates at both meetings,” says Jim. “A 0.50% rate cut can always be rolled out at some future meeting if needed. “In effect, the Fed is saying, ‘What’s the hurry?’ “A 0.25% rate cut will have the desired effect, at least in the Fed’s eyes, without appearing too political or too panicked,” Jim concludes. Honestly, I couldn’t have agreed more. But, of course, it didn’t turn out that way. So, what are the three things I’m concentrating on? [Man Who Predicted Biden's Drop Out In October Issues Shocking New Election Prediction]( After calling Biden's withdraw, former White House advisor Jim Rickards issues an even more shocking election warning... [Watch This Video to Learn More]( Inflation and Growth The Fed's decision shows that it believes inflationary pressures are subsiding enough to justify more accommodative monetary policy. I think this is delusional. We’re nowhere near the 2% target, not that we should have one at all. A 25 basis point cut is designed to support economic expansion, especially as unemployment has ticked up slightly and wage growth moderates. But a 50 bp cut? That’s plain panic. I now doubt the economy will achieve a "soft landing" (a gentle slowdown without a recession). By this move, Powell himself has signaled a more severe downturn is the likelier case. Labor Market The labor market, although still strong, has shown signs of softening. The Fed’s focus on reducing rates could help prevent further deterioration, ensuring the job market remains stable. But this cut looks like it was made in response to growing economic vulnerabilities. Market Reactions While markets initially reacted positively to the cut, concerns about economic weakness caused stocks to close slightly down for the day. Investors are now grappling with mixed signals—on the one hand, the rate cut provides relief from higher borrowing costs, but on the other, it might reflect underlying economic concerns. Initially, this larger-than-expected cut looked like it would pave the way for further rate reductions later this year. But I’m not sure the Fed is as enthusiastic about that as the market is. So What’s Next? Here’s quite an ominous tweet from Geiger Capital. Credit: @Geiger_Capital Shall we see a spike in unemployment presently? Wrap Up This move is starting to look like a stealth sell signal. The charts are still fine, but I think this could be the beginning of a correction, at least, or a prolonged sell-off into bear market territory. Something is wrong with America’s financial plumbing, and I have a funny feeling Powell knows it and that’s why he convinced most, but not all, of the Fed governors to back his move. Only Michelle Bowman dissented, and that’s a first for a Fed governor since 2005. I’ll be writing more about this in the Morning Reckoning, which will be in your inbox in a few hours. Buckle your seatbelts. All the best, Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( ☰ ⊗ [UPDATE PREFERENCES]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here,]( or manage your newsletter preferences [here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. 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