Wednesday, July 31, 2019

The Market Gets a Rate Cut, But Throws a Fit Anyway

The Fed lowered the Fed rate by 25 basis points. The market immediately turned down. The rate cut had been priced in for months. This, among other things, is one of the reasons that over the last couple of months I've lowered my exposure to stocks from 50 percent to 25 percent, holding mostly boring stuff like an MLP (oil and gas pipelines), REIT, an ETF that holds preferred stocks (PFF) and some inverse EFTs as a hedge). The rest of my retirement portfolio is in boring money markets paying 2.13%.

That interest rate is a travesty for retired people who need safety yet income in retirement to cover at least a 4% draw down and to keep up with inflation. The Fed has been screwing us over for a decade. Whenever the government creates artificial prices in anything, markets get skewed and the outcome is usually a shortage of something, somewhere and lots of people get hurt (because they're usually not paying attention). I have to invest quite aggressively in retirement. I spend more time doing it than I should and take more risk than I should. But screw the government. One of my IRAs has a 26% return over the last 12 months. The other has a 9% return.

Anyway, I digress, but I needed to vent. The DJIA fell 333.75 today, starting about 1 pm CDT when the Fed made their announcement. And after market close, futures are down another 50 points.

Note that as indicated by the blue line on this daily chart for the SPY EFT, which represents the S&P 500, return from the market has been essentially flat for the last 11 months. 

The market is unpredictable. I am always careful around two important events: earnings announcements for individual stocks, and the Fed. And don't think bad earnings can drive stocks down. I've seen stocks go up on bad earnings and down on good earnings. All depends on investor expectations.

Not sure why investor expectations drove the market down 300+ points today, but I'm sure they're be plenty of pontificating.

But I don't care. I was prepared for this by owning two inverse EFTs (RWM for the Russell and SQQQ for the NASDAQ). So my portfolio was up a modest .67% while the Dow most indices were down more than 1.2%. (In all honesty, I still have small losses on these ETFs, but I think that will change over the next several months, if not sooner).

It could have gone against me, but with the market being overvalued, it was a good hedge. And I also made $2,600 after buying 2 Nat Gas futures contracts yesterday.

I study fundamentals, but trade on technical data.

So I really don't care what the Fed does, or the Federal government does, They usually get everything wrong anyway.

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