Morning Note: Playing Rope-A-Dope

Equity markets across the globe are looking to close out their best week since August; things must be really looking up! Right?

Well, per the action this week — up Monday on prospects for stimulus, down (from peak) on Tuesday to the tune of 500+ Dow points when the President pulled the stimulus plug till after the election, then up triple-digits Wednesday and Thursday when the plugging of a ginormous stimulus plan resumed — suffice to say that if we’re talking whether to go, say, 2 trillion or 3 trillion in stimulus, things must be really really bad! Right?

More on the above in our weekly macro update later today.

Asian equities rallied overnight, with 12 of the 16 markets we track closing in the green. Europe’s flashing mostly (14 of the 19 bourses we follow) green as well (thus far this morning). U.S. major averages are once again mostly rising to start the day: Dow up 95 points (0.34%), S&P 500 up 0.50%, Nasdaq up 0.90%, Russell 2000 down -0.01%.

The VIX (SP500 implied volatility) is down -2.96%, VXN (Nasdaq vol) is down -3.40%.

Oil futures are lower by -0.44%, gold’s up 1.75%, silver’s up 3.83%, copper futures are up 0.98% and the ag complex is up 0.07%.

The 10-year treasury note, like yesterday, and like gold this morning, refuses to embrace the equity market optimism, it’s trading a bit higher (yield a bit lower). The dollar’s taking a hit, -0.45%.

Led by our silver and gold positions, then followed by base metal commodities, tech and Eurozone equities, our core portfolio is up 0.50%. Keep in mind, while our core allocation is right there with stocks this morning, our current mix is designed to not be entirely beholden to the stock market.

Speaking of the stock market, here’s the quote I like to share anytime someone comes to me with their tale of stock trading woe:

“No prizefighter can go with high spirits into the strife if he has never been beaten black and blue; the only contestant who can confidently enter the lists is the man who has seen his own blood, who has felt his teeth rattle beneath his opponent’s fist, who has been tripped and felt the full force of his adversary’s charge, who has been downed in body but not in spirit, one who, as often as he falls, rises again with greater defiance than ever.”

Seneca, Letters from a Stoic

Trust me folks, having been in the ring for over 30 years, I’ve learned that there are clearly times to play rope-a-dope and let the market punch itself out. This one has come strong off the matt (the March low), but there’s desperation in its eyes and in its corner’s (the Fed, etc.) actions. Coming in with these flurries is tantamount to a desperate fighter throwing all caution to the wind, leaving himself wide open for the proverbial haymaker. 

Now, that last paragraph is not a prediction, just an assessment of risk, or fragility. The flailing fighter is simply not someone we want to bet all of our money on. 

Have a great day!

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