By: Ross Silver, Professional Guesser
I am not sure if you feel any different post the holiday season but those of us considered “professionals” of finance all probably feel like we were shoved in a washing machine for the past 2 months. What was that? Well, “that” is what happens when the adults leave the room and the children are allowed to play with the big toys. For example, when funds went “risk off” in October, those who were chasing alpha (performance) received an early holiday present, namely hedge funds. Hedge funds have been getting their teeth handed to them over the past decade because anyone with a discount brokerage account could buy a handful of stocks or ETF’s and beat “the smart money” aka hedge fund managers. In late October hedge fund managers noticed that the major institutional funds were moving to “risk off” in order for these funds to collect their annual fees AND annual performance bonuses. The hedge funds pounced as retail investors only stood in between them and their own performance bonuses and set off a quite the volatile storm. In the process of that storm some large funds who went from gains to losses in or had minimal gains decided to aggressively tax loss sell. With the aggressive selling and hedge funds attacking on the short side, the perfect downward storm was created.
Is the weakness we experienced in the past two months a sign of things to come? My belief short term, no. I feel like a perfect setup was in place for hedge funds to take advantage and they obviously took advantage. Now that pension funds, stock buybacks and other large buyers are coming into equities markets, I believe equities will move higher in the near term. As we get closer to summer, I think equities may get a little bit choppy due to the employment market weakening and the housing market being very weak. But I am of course guessing as is anyone making a forecast.
On a separate note, with the 10 year treasury dropping below 3% mortgage bonds, (for sale) have been difficult to come across and that is leading to some excess demand (to buy bonds) in the bond market. This increase in demand may lead to yields moving even lower which is another reason I remain bullish in the near term. Remember, prices and yields are inversely correlated.
Lastly, I think 2019 is going to be a strong year for biotech and congrats to those of you who also had LOXO. I bought LOXO at $180, sold at $140 about a month ago and hated myself for doing so. After watching LOXO then go below $130, I bought some June $140 calls (option to buy stock at $140) and then Monday found out they were getting bought for $235/share. Hello!!! I also think tech will be strong in 2019 again and of course cannabis. Be sure to take a look at our mock portfolio of companies we have conviction in located on the homepage of our website. That portfolio is already up 80%+ this year.
The Sports Desk
The college football National Championship game was an odd duck. I have no idea where the Alabama team I saw in October and November went, but that team vanished. Alabama was so incredibly un-Alabama in that game that I had to move to a different television to make sure I wasn’t accidentally watching an arena league game. Many professionals in the sports prognostication industry told me Clemson was the right side (before the game) but I didn’t agree. They turned out to be right and Clemson showed me that their games against South Carolina and Texas A&M were not accurate measures of ability. Congrats to Clemson and Bama needs to rediscover itself after that debacle of a showing.
We are 5 months away from the Derby and there are some horses who have caught my eye, namely Improbable and Nolo Contesto but we have a ways to go until we can separate the may versus will not. I saw Improbable run at Churchill when I was there for the Breeders Cup and despite his diminutive stature; the horse looked like it was running downhill in the stretch. I am going to try and lock in 12-1 on that one for a Derby future bet this weekend.