During the latter half of Jan, I was traveling on the other side of the world…a 12-hour time difference that gave me little scope to keep up with markets on my piddly little iPhone screen. This break from the daily grind forced me to relax, rest and enjoy the present with my loved ones.
As I got back and started catching up on the current state of the markets, I realized that while my SWAT portfolio was largely unchanged, the risks that could impact it had increased significantly.
Among the attacks on the US Feds’ independence, the ongoing yo-yo tariffs, the predictable TACOing and the unpredictable, chaotic foreign policy and military actions…markets have started taking notice as demonstrated over the past week.
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Table of contents
Risks are rising amid rampant speculation
Should we do something or ignore the wall of worry?
Beachman’s S.W.A.T. portfolio plan
Recent Q4 earnings reports
The bottomline
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Risks are rising amid rampant speculation
This weekend we head into another US govt. shutdown. Another one? Such gross incompetence and chicken shit. There is no guarantee that it will be resolved soon.
Markets have become immune to these political games. Yet they roller-coastered up and down…mostly down…for other far more serious reasons.
GS’s Risk Appetite indicator has risen significantly…currently at the highest level since the 2021 ATH. The BofA Bull & Bear indicator is at 9.4, a “hyper‑bull” reading that usually serves as a contrarian sell signal and a warning to add hedges rather than increase risk. Average cash level in funds has declined to an all-time low of 3.2%, while equity allocations are at their highest since late 2024. Nearly half of funds report no protection against an equity selloff, the lowest level of hedging since 2018.
Everyone is “bulled” up long in everything (except crypto). In fact, short interest in the SP500 and QQQ is at the lowest levels in almost a decade. Everyone and their uncle are on the same side of the boat…that is typically not structurally sound for both markets and boats.
The US$ keeps dropping and is the most oversold since 2020. It is hard for the US Feds to cut rates with the US$ sliding and precious metals surging to record levels. This will tie the US Fed’s hands because a declining dollar is equivalent to a rate cut. In fact, it is more likely that LT rates will now rise rather than fall. Higher LT rates are bad for businesses and consumers.
Lower US$ = higher commodity prices = higher raw material prices = higher manufacturing costs = higher prices for consumers.
The volatility in precious metals like Gold and Silver has hit historic levels…parabolic rises followed by gut-wenching drops. This is a sure sign of rampant speculation…algorithm-driven, fintwit-driven betting. Experienced traders are watching from the sidelines. The desperate and the degens are buying at nosebleed prices only to be socked with a -31% drop in Silver in one day. One data service estimates that about 30% of selling in SLV at the Fri lows was by retail investors who lost about $4B in one day. When your milkman and your baker are rushing to pawn shops to trade their silver spoons and forks…you know that the bubble is close to peaking.
The “Sell USA” trade is growing. Today, the US Treasury needs more buyers for US bonds. Unfortunately international buyers are slowing down their purchases and shifting to precious metals like Gold and Silver along with increased buying (repatriation) of their own country stocks and bonds. China, Denmark, Japan, Switzerland, UK….this trend started slow, but is accelerating. Global gold reserves are now higher than global US bond reserves. New buyers like stablecoin issuers have not picked up the slack. This keeps LT interest rates higher and the US Treasury on edge in terms of funds availability. This situation could further worsen with the upcoming US tax return filing season…larger refunds expected due to the recently passed OBBB.
I could go on and on about other risks that I see in the markets today…these are just a smattering that piqued my interest during my post-travel catch up. US stocks are significantly overvalued as per forward PEs or the CAPE, we have historically high margin borrowing, exchanges and govts (China, South Korea) are clamping down on speculative stock market activities, the growing volume of layoffs by US companies, lack of new hiring by small companies, the spike in wholesale inflation (PPI) readings…etc…etc…etc.
Should we ignore the wall of worry?
On the one hand, all this seems familiar. We have seen similar movies play out since 2020…risks rise, markets dip, dips get bought, investors cheer, fintwit gloat with their YTD returns and everything goes back to normal.
On the other hand, astute investors always pause to consider the possibilities.
The question that is top of mind is whether current market conditions are a rerun or something new? Should we BTFD or get more cautious? Should I stay long…Should I stay invested…or…are we merely “picking up pennies in front of the steam roller” and “the shit is about to hit the fan”.
Here is my take on these questions…