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!