Week in Review

Happy weekend to all, and to those in the states I hope you enjoy the three day weekend. 

I've been making some readjustments the past two weeks, more to the defensive end. I am by no means a macro expert but I wholly enjoy reading the tea leaves trying to figure out where we're going. For me I'm seeing cracks in the foundation and I want to position myself ahead of where the ball is going.

A few days ago I retweeted below:  

Recession risk for corporate debt markets 📉

Summary of @PensionCraft's (Ramin Nakisa) video titled:

"Global Credit Crisis - The Next Big Financial Crash?"
Link: https://t.co/tHA8MsUUVJ

Does a recession spell more trouble for the corporate debt market? 🧵👇

— The Notetaker (@FinTwitNotes) April 9, 2022

This was an excellent summary of credit risk which is something we don't see making the news everyday. If you look at the St. Louis Fed graph below, you can see the high-yield spread rising over the last few months. 

While the Fed raises interest rates, I don't think we'll see inflation vanish immediately, but we will see slowdown in some businesses. We're already seeing some '22 outlooks being revised, most notably Target, due to inflationary pressure and uncertainty. As rates rise and pricing starts to lose it's stickiness, corporations would rather slow down hiring than surrender margin. 

All in all I think we're in for a challenging back half of '22, so with that I've reallocated a good chunk of the portfolio even more defensively.

For the first half of '22, Treasuries were not the flight to safety I expected. Along with the overall stock market they've declined substantially. With more challenging times ahead, I do believe there will be a flight to safety and I'm positioning myself ahead of that and keeping some powder dry for longer term opportunities as they present themselves.

From a sector basis I've heavily shifted to Utilities, Healthcare and Energy. I was already heavily positioned in Energy since the first part of the year, but I've bumped up utilities ($XLU) substantially. 

PADI: Projected Annual Dividend Income has declined to $8.5K mostly as a result of being heavy cash and the lower yield from treasuries. 

Dividends: Crossed the $4.8K mark thanks to Starbucks and Williams Sonoma (which I recently exited). 

Options: Rough week for covered calls as I had to buy back at a loss. I was able sell an $AMC $17 put for $100 profit. Overall I'm still negative $400 for options but I'm slowly clawing my way to the green by being more disciplined.

What's Next?  Right now I'm keeping my eye on forward looking signals to either confirm or deny my hypothesis. I'm comfortable with the allocations and may make little tweaks here and there, but will keep the overall profile above for the next few months as things develop.

Have a great weekend!

Week in Review

Happy weekend everyone!  A short update this week as I'm nursing myself back to health after being sick for the week.

Performance:  Week over week -.47% compared to S&P at ~ -2.2% and NASDAQ at ~ -2.3%.  With violitlity high all last week and more headwinds coming, I cannot allocate more funds towards growth. I would love to, but I'm not ready yet. As I mentioned earlier this week, I have convinction in my picks but not in the general market at this time. 

Michael Gayed brings up a great point below. With stocks & treasuries down, where does one go for flight to safety?  Who's safe from getting crushed?  When Luna and other crypto ponzi schemes come crashing down, where will the money go?  I'm in agreement that treasuries have to pick up the slack at some point. I've been allocating a portion of the portfolio to $SCHO and moved some more last week ready to deploy into opportunities as I find them.

Said it before, saying it again.

This environment is worse than 2020 and worse than 2008.

This is hell.

The only thing that gives me hope - Treasuries are finally acting risk-off again.

And if it holds, it means only now are real risk-off conditions manifesting.

— Michael A. Gayed, CFA (@leadlagreport) May 12, 2022

 Dividends:  When you can lose 2% - 3% of your portfolio any given day, sometimes income feels like a drip into a leaky bucket. Since we're going for the long-term here though, I'm comfortable the dividend growth stocks we've selected will weather the long-term fluctuations and keep adding up over time.

• $MED - $42.64
• $MMP - $137.99
• $COST - $8.10
• $MAIN - $21.72
• $O - $28.65
• $APPL - $11.27

Crossed over $4,500 in total dividends this week which feels great. In about 3 weeks we'll get to $5,000. 

Projected Annual Dividend Income (PADI) is ~$9.6K. Some of this is a function of some higher yield buys like $XYLD, $MMP, $ETO, $VZ, but I'm comfortable with the balance now.

Dividend Increases: Two weeks ago we received another increase in Telus, a Canadian telecom company. 

Options: Netted $154 mainly trading $SBUX covered calls as they went downhill. Also sold $AFL and $PFE covered call expiring next week <.30 delta. I'm closing my red gap on covered call income and hope to be in the black by July. I am sitting on an $AMC $17 put that expires in July which should have room to grow. 

Sectors: I'm a little overweight on Consumer Discretionary in this enviroment. I don't consider Dollar General 'truly' discretionary if we're looking at a recessionary enviroment and while Lowes and Target may be down, these are comfortable longer term holds.

 I'm disappointed with Williams Sonoma performance. They rank very highly on my screener (23 out of 25 points), and a quick view on Stock Rover shows some great consistent performance. Sales growth, FCF, Gross Margin, Net Margin, all heading the right direction except the stock price. In a recessionary enviroment I'm sure they will not do as well, so I'll need to think about either holding or selling. It feels like the right company at the wrong time. 

Other Trading: Sold my remaining $NVDA shared Friday at a small loss. Fortunately I purchased in October, rode a wave to ~>50% increase and sold some shares at a high so was mainly playing with house money.  As a lifelong gamer I'm very familiar with $NVDA and have been using their products since early 2000's! As interest rates rise and we start seeing more crypto crashes, less drive towards crypto in flight of safety and real assets, NVDA will take a hit. Granted I think it's an awesome long term company, but I think they're still very overvalued.

Next steps: While I keep meaning to rebalance I have had very ltitle free time. If I felt the portfolio was grossly unbalanced I'd find time so for now I'm okay.