January 14, 2015

The trading activity statements are running a few days behind when I print them out, but today was an excellent day centered around trading in Gilead.  Anyway…

2015 Should be similar to last year, except the rest of the world will be even worse!  I expect the “high water mark” for the S&P 500 to be about 6-12% with the finish around 4-8%  this year, but with lots of volatility.  The market will increase by virtue of inertia, sentiment, and the lack of alternatives elsewhere in the world.  I’ll go through my macro viewpoint for this year in no particular order:

I believe the overall sentiment for the stock market is still positive, but I believe there will be a lot of negative sentiment introduced by the staggering weakness of the rest of the world.  The biggest concern I have is the strong U.S. dollar, which appears to be getting stronger as foreign economies print cash.  A strong dollar is usually bad for the stock market, so I’ll be watching that closely though the year.  Also, the Republican Congress should be better for stock markets as stereo typically, they are the “party of business”, which is good for overall stock market sentiment.

The U.S. bond market should be strong again.  So far U.S. treasury yields have been falling even further, to under 2%!  People (I think lots of foreign money) are just buying U.S. bonds.  And why not when Spain is issuing bonds at yields similar to that of the U.S.!  Would you rather the U.S. owe you money or Spain?  Of course the U.S., and at interest similar interest rates its a no-brainer.

Commodity markets are oh so very weak.  Copper demand is falling and will fall to around $2 or lower in my opinion.  I might even short Copper soon.  Oil has fallen so fast its head spinning.  Without OPEC, we see the true value of oil.  $100 oil was not the norm, it was the anomaly!  With bond yields going ever lower, threat of global deflation, and a tanking commodity market, the search for yield is real, just like last year.

I’m going to say that the Fed will NOT increase rates this year, or will push back any rate hikes to late this year, not the middle of this year as previously said last year.  Income inequality is real and despite lower oil prices, consumer spending will not pick up as much as pundits believe.  I believe any extra money is being spent on healthcare…I know my insurance premiums doubled with Obamacare! Big deal if I save $40 a month at the pump… my insurance premiums increased $120 per month!  With no income growth for the majority of people, the investor class benefits. The uber-wealthy don’t need 12% a year gains, they just need to squeak out a decent yield to not lose net worth.  $100 million dollars at 3% interest still $3 million a year!  That is plenty for most people to live on, why risk more? Since this is the money driving the markets, I think there is a strong demand for yield, just like last year.

So, to begin, I started with positions in utilities, healthcare, and technology.  My biggest weighting is in healthcare, and I’ll be expanding that through the year.  The restaurant stocks are doing well with lower oil prices (I said most of it is going to healthcare, the rest seems to be going to fast-casual dining).  I’m very bullish on Disney, they just keep killing it.  And content is king right now.  Small caps usually outperform the S&P about 70% of the times after a double digit increase the year before… so just playing the odds with a position in the small caps.

Overall, this has been a great start to the year.  As of today, the portfolio is beating the S&P by 0.98%.  Not bad, about 1% in 9 trading days… If only I could keep that pace all year!

Lastly, the trading activity statement: 01-12-15 – Statement