Beachman's investing plan - Shenanigans!
Portfolio: What I am planning to do in the markets and with my portfolio
US Feds’ meeting, interest rate cut (or hike) decision, Chair Powell press conference and triple witching options expiry…yes, all these wonderful events coinciding after markets had five up days in a row and their best week of the year.
Welcome to the second half of Sept, the historically weakest 10-day period of the year, when market shenanigans will likely hit peak nonsense levels.
I will explain more below…
Table of contents
Market signals
Key questions
Beachman’s plan
Conclusion
Upcoming exclusive paid content
Beachman recommends
Each week, I will share my recommendation for an app, a book, a website, a podcast, a publication, a movie…anything that I found interesting and useful from an investing and financial management perspective. I don’t get paid to do this. Beachman’s Newsletter has and always will be an ad-free publication. So here goes…
Mezzi
Mezzi is an app that allows me to view all my investment accounts in one place and then provides regular insights into how my portfolio is performing as well as how I can optimize it. I have used Quicken for many years and recently I started using Mezzi instead. Mezzi is like a next-gen investment portfolio management tool due to its inbuilt AI smarts. Once I setup all my accounts in the app, it automatically pulls daily updates on my holdings, prices, account values. Then Mezzi goes to work, trying to find inefficiencies and opportunities for me to consider - minimizing capital gains taxes, reducing ETF fees, providing recommendations on where I could get a higher interest rate for my cash balance etc. I was recently given early access to Mezzi’s AI chat which will soon go live for all users. Interestingly, this AI engine has been correcting many of ChatGPT’s math hallucinations.
I am so impressed by Mezzi that I will recommend it to my daughter and son who are close to wrapping up their teenage years and entering adulthood.
Give Mezzi a try and let me know what you think. The company sent me this 2-month promo code “BEACH2” to share with my readers.
Market signals
SP500
The SP500 is close to being overbought and ripe for a triple top. You see these topping signals in the chart above. Markets have tried to get past 5,650 twice before and have failed. Third time’s a charm?
In the bottom section of the chart, you can see the unbound RSI (dark gray line) climbing towards prior tops that were followed by mean reversions lower. This is confirmed by the increasing red background shading denoting overbought market action.
I looked at recent market positioning data from several brokerage firms (GS, MS, JPM, BofA etc.), all confirming that hedge funds and trading algorithms have lower long positions in stocks, especially tech stocks. In fact, they have been net sellers of US stocks for 5 consecutive weeks now.
So think about this…stock prices are higher, yet large institutional positioning is lower. Sounds precarious to me.
5,450, once again, proved itself to be good near term support as markets dropped into and then recovered from that range. 5,300 and 5,200 are lying in waiting to take up any slack as needed. Even 5,000, which would be a -10% correction level, should hold up markets if we go there.
The NDX (Nasdaq100) has similar strong support at 18,200, which is about -6.5% lower than current levels.
Interest rate cut incoming
Markets are pricing in a 0.50% interest rate cut this week. I continue to believe that the US Feds will execute a standard 0.25% cut and leave things as is until after the elections in Nov.
0.50% rate cuts or larger are more likely in the event of a financial crisis, which we do not currently have. An unexpected large cut could, in fact, spook markets into wondering what the Feds know that we do not. Every time is different…that is just the nature of time and history. This time, economic conditions are much better as compared to previous cycles. Yes, there are areas of stress and increasing risk such as lower retail spending, higher retail credit delinquency, commercial real estate woes, contracting manufacturing activity, more layoffs, less job openings etc. However, nothing is breaking and GDP growth is healthy.
Milton Friedman compared rate cuts to “a water tap that you turn on now and that then only starts to run six, nine, 12, 16 months from now.” This week’s rate cut is targeted towards possible US economic conditions in mid-2025.
Be ready for markets to be disappointed if we do not get a 0.50% rate cut this week. Additionally, pay closer attention to the updated dot plot that will give us projections for future rate cuts.
Triple witching
Fri Sept 20th is triple witching when stock options, stock index futures, and stock index options all expire simultaneously. This convergence can lead to increased trading activity and higher market volatility because options and futures holders have to decide whether to close their positions or roll them over to the next month or quarter. In turn, market makers have to buy or sell stocks to remove old hedges and put on new hedges. If markets take on a hawkish tone after the US Feds’ meeting, things could snowball lower and vice versa. While triple witching can present opportunities for investors, it also poses heightened risks due to the potential for large market swings.
I plan to stay particularly alert on Wed and Thu this week.
US$ and the 10-year rate
Going forward, there are only two leading, macro indicators that we should care about. These two - the US$ (expressed by the US $ index DXY) and the 10-year bond rate - should tell us everything we need to know about the current health of the US economy and the possible future performance of markets.
I am giving myself permission to stop tracking about 35 other macro indicators that I have been monitoring and mapping over the past 3-4 years since the pandemic. I can now mostly skim over inflation reports, jobs reports, ISM reports, NFIB reports etc.
Going forward, all of their effects will be reflected in the US$ and the 10-year rate…that too in a forward looking, leading manner. This makes them very actionable for investors.
If you feel so inclined, then we could add copper as the third leading macro indicator to track. Copper is one of the most important commodities for global economic activity - industrial, construction, power…heck even for all those new AI data centers that are being built all over the world. So far Dr. Copper is still sick, down -19% from its highs this year and relatively flat overall YTD. Once copper prices start picking up more consistently, I might get interested in using it to express an investment thesis in AI infrastructure and power.
Corporate share repurchase blackout
Leading into the Q3 earnings season, corporations are prevented from repurchasing their shares until they publish their quarterly earnings report. As of last Fri, Sept 13th, 50% of SP500 companies are in the blackout period and more will join them over the next two weeks. As per GS, in 2024 so far, US companies have repurchased more than $800B of their shares against total authorizations of about $1.15T.
That said, there is a lot of dry powder on the sidelines. As per Yardeni, more than $6.2T of cash is sitting in money market funds earning 5.0% interest. More than $2.5T of those assets are owned by retail investors.
As interest rates are cut, the interest earning power of these funds will decline, pushing investors to find better returns elsewhere - in stocks, bonds, commodities and crypto.
Follow Beachman
On the daily, you can find Beachman in two places…
Beachman’s substack chat line here
Beachman’s Threads feed here
Please check out the must-reads listed on the About page and the Roadmap page. I am in the process of shutting down my Twitter account and transitioning to the spaces listed above.
Key questions
The specific, top-of-mind questions that will shape where and how I invest for the rest of 2024 and leading into 2025:
Who is actually making money in AI now or in the near future?
When will the current AI capex boom turn lower?
Who will be the next beneficiary of hyperscaler and enterprise AI spend?
Are markets underestimating US geopolitical risk?
When will small cap stocks turn higher in response to interest rate cuts?
I am a growth investor, a tech investor. Right now, AI and cybersecurity are the two hottest investing themes with multiple catalysts in play. Therefore, no surprise that most of the questions above are AI-related. I curate such research questions to stay hyper focused on finding the best investment opportunities for my portfolio.
I recently initiated 2 new positions in my portfolio - a small cap AI stock and a small cap ETF. I have 2 more stocks on my active watchlist, both of which have growing tailwinds fueling their business growth. Additionally, I am analyzing 6-7 more stocks to better understand their fundamentals and forward business prospects.
The hunt continues…
Beachman’s plan
Given the market signals discussed above…
…given the key questions that I am researching…
…my simple, actionable, measurable investing plan is as follows: