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Here is Your “RISK OFF” Portfolio for August | The Mesh Report

Here is Your “RISK OFF” Portfolio for August

John Thomas July 21, 2017 Comments Off on Here is Your “RISK OFF” Portfolio for August

With the expiration of my final July options position in Goldman Sachs (GS) today, I am on the verge of taking my model trading portfolio to a rare 100% cash position.

Despite a lot of blood, sweat, and tears, I was only able to take my followers up a modest 138 basis points so far in July.

Sometimes, the market just doesn’t have anything to give you, no matter how hard you work.

So I called a hedge fund trader friend of mine on the East Coast to ask about his positioning.

He said he was 100% short a basket of names and was about to pull the trigger on Amazon (AMZN).

He described the market as a mountain of super dry kindling infected by bark beetles and surrounded by books of matches.

I called another sharp trader in Australia, and he confided that he hated the market, but was already 100% in cash.

There was no way he was going to stand in front  of the momentum of the FANG’s until they rolled over. Apple’s (AAPL) Q3 is looking to be incredibly weak as consumers defer purchases until the iPhone 8 launch in October.

I then spoke to a private banker in Geneva, Switzerland. He confessed that he sold all his FANG’s and was loading the boat for his clients with gold (GLD) and US Treasury bonds (TLT).

He thought the ten-year Treasury bond yield could touch 2.00% before the crying was all over.

All three of these conversations had one thing in common. No one had the slightest idea which spark would illuminate an interim market top.

If you had to pick a month when the black swans alight with a vengeance, it is always August.

The guns of August started WWI.

The 1998 Russian Debt Crisis, which led to the collapse of Long Term Capital Management, ensued in August.

The 2015 Chinese currency devaluation triggered a Dow 1,000 point down day in August.

August, August, August.

Of course, these big moves happen because of poor summer liquidity, and the fact that the “A” Team is off at the beach, unwilling to commit big money on the basis of a few random text messages.

The market action this week left traders jaw dropped, befuddled, and gob smacked.

We really only got about two hours of serious weakness, when the health care bill died a final death in the Senate.

After that, we saw nothing but a slow grind up in the FANG’s, regardless of earnings, news, or the weather.

NASDAQ has gone up for ten consecutive days.

The S&P 500 (SPY) has risen for 267 days without a 5% correction.

We have now undergone the longest period in 30 years without a 5% correction.

And you’re asking me where are the Trade Alerts to BUY stocks?

It truly is a “tear your hair out” kind of market.

So I thought it timely to assemble for you a portfolio of positions that would do extremely well for any kind of 5% correction, major dump, or Armageddon that may unfold in August.

Here it is:

(TLT) – Any “RISK OFF” in the markets is accompanied by a flight to safety into US government bonds. Note that this started last week.

(GLD) – You want more safety? Nothing beats a hideout in the barbarous relic, which always does well when bonds rise and interest rates fall.

That means there is less of a yield penalty when holding precious metals. Funny thing; gold also started to rise last week as well.

(VIX) – No doubt the longest suffering investor in the market in 2017, buyers of the Volatility Index (VIX) have been beaten like the proverbial red headed step child. It is now trading at 25-year lows.

As a result, there is now an absolutely massive short volatility (XIV) position in the market right now.

However, the slightest bit of market weakness could cause this closely watched index to jump 50%-100%.

Mind you, I m not predicting a new bear market here, just the long overdue 5% correction.

From there we should launch on into new highs by the end of the year.

Pass the suntan lotion.


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