The Mechanics Of Fear: Prioritize Cash, Then Health, Cloud, Med-Tech And Social

Mechanics of fear

Modern economies achieve their high productivity through trust and the absence of fear. We trust that our basic rights like our property will not be violated. The titles to our homes are just a piece of paper, our currency is just a piece of paper. We trust that the dollar, as a fiat that’s not backed by gold or silver as it once was, to remain a means of exchange. Yet, today we don’t even rely on a piece of paper but some bits in a distant computer attached to an ATM card. Don’t even get me started on the tenuousness of Bitcoin as a safe and sustainable store of value. All means of exchange are vulnerable to hacking. Believe me when I tell you that the war colleges, think tanks, the Joint Chiefs and the IC are gaming out a foreign actor hacking our monetary system. That hack would be the first act of war that could be more destructive than 9/11 by an order of magnitude. We trust our public health system and being able to congregate in public and not catching a deadly disease. We trust that the country will elect a leader that believes it to be wrong to confiscate private property, that success is something to be celebrated. That achieving the American dream is still possible, and at the same time perhaps needs strengthening, but not a revolution. The resurgence of Biden while topical this morning is not the main impetus to the bounce we are observing this morning.

Even though the market sold off on the Fed cut yesterday, it’s jumping with the realization that the Fed did something.

My main observation and the primary call to action by the title of this piece is to start generating cash. This note is really a continuation of yesterday’s piece where I predicted a double “V” recovery. I know that some of you get annoyed when I point out when I get my market calls right, first of all too bad, secondly I’m pointing out my correct call because it’s important. We are in fact observing the second “V” today. It’s pretty clear that we are putting in a bottom. I would argue that the support level would be just above the bottom of that second “V”. Read the previous article where I ask you to generate cash and how to do it. The Dow futures were above 700 this morning and is now in the mid-500s. Would anyone be surprised if we lose another few hundred points today or tomorrow? Don’t get me wrong, I’m actually very heartened by the price action. I’m going with the assumption that most of you are already “all in” and are now riding this bucking bronco of a market with no cash cushion underneath. That is gonna leave a mark. Seriously, you need cash circulating in your trading account to take advantage of new situations and also taking profits when you do get the rhythm right.

All the market commentators were dumping on the Fed yesterday.

But the lower mortgage rates is having the effect of putting real cash into the middle-class pocketbook. Feast on these numbers released this morning…

  • Weekly mortgage applications up 15%

  • Average mortgage 3.5% that is about 1.10% lower than a year ago

  • Quicken Loan online applications all-time record Monday and Tuesday. Their weekly mortgage applications up 26% from last week and up 224% from last year

Depending on the size of one’s home mortgage monthly payment that can translate into more spending in the economy. Pair that with the drop in gasoline prices, the economy has fuel to weather this storm. Also very important besides the refi, new home purchases are up 10% from last year. Housing creation is a huge driver of economic growth both from a consumption and wealth creation through forced savings. There’s cause for optimism, a lot of optimism!

China is coming back online

Late last week, Matthew Shay NRF – National Retail Foundation President said, “Disruption is abating, and supply chains are coming back online. Also said that last week foot traffic in a number of large retailers has not been affected. That said, I suspect this is the “party line,” and probably should be taken with a grain of salt. Still, I expect that stores and airplanes will fill up once again and soon. China is now reporting less sick and a lower number of deaths than the rest of the world. Foxconn says that all its factories will be up and running fully within two weeks. Other reports are saying that China is now at 60% capacity and getting to 100% before the end of the month. To me, that means that Amazon (AMZN) is a buy.

Before I get to what to buy please look at your cash situation.

The cash management discipline does not mean you should be adding cash to your trading account every time you lose money. That is counter-productive. If you have extra cash, put that into your investment accounts first. Your trading account should be generating all the cash that you need. Otherwise, of course if your trading account is too low to be effective it obviously means that you are doing it wrong – losing. That all said, if you have paid down all your credit cards, and set aside emergency cash and you still have money left over, then now is probably a good time to top up your trading account. In regard to cash management, again read the previous note, look at your portfolio. Are there positions that you have profits in? Or even if you are losing, is this a name that you have been holding for 6 months and it has been in the red all along? Maybe sell a few shares of each. No one knows how strong this pop today is. We could be having a volatile rise above the lows, more “V”s going forward, so the priority is cash raising. That said there are areas that you should favor. They are:

  • Healthcare services that really took it on the chin with Bernie on the rise, so names like United Health (UNH), Anthem (ANTM), Centene (CNC), Humana (HUM) are all down double digits. These might be good long-term investments as well as trading vehicles.

I want to specifically highlight Progyny (PGNY). This is a recent IPO that I have been accumulating in my long-term investment account even though it’s not paying a dividend. It’s a recent IPO. Read up on it and make up your own mind.

Cloud names: Alphabet (NASDAQ: GOOG) (GOOGL), Amazon (AMZN) and Microsoft (MSFT), also the Cloud services names like Workday (WDAY), ServiceNow (NOW), Okta (OKTA), Coupa (COUP), Alteryx (AYX), Atlassian (TEAM), Slack (WORK). There are dozens of names.

  • Med Tech: I like Teledoc (TDOC), Dexcom (DCXM), Atricure (ATRC), Exact sciences (EXAS), Tandem Diabetes (TNDM).

  • Social Names have some insulation from the market selling off because of virus fears:

Pinterest (PINS), Twitter (TWTR), Facebook (FB), Snapchat (SNAP).

If you are an equity trader you can start with one share at a time and build up over the next few weeks. I hope your takeaway from this article is NOT to promote throwing money at stocks today and willy nilly. Read up on the names I have listed here. I would not commit a lot of money today. I would wait for another virus scare, or that Bernie Sanders has some comeback. The market is VERY twitchy, but the market is still on the upswing. Take small bites. I’m operating on the notion that this whole sell-off will be proven to be unfounded, that the virus is just bad flu and that the democratic process will yield a candidate that will not destroy capitalism.

I still believe that the S&P 500 will yield strong returns this year, with interest rates practically non existent. I believe we will approach 3700 before the year ends.

Insider Corner

Morgan Stanley (MS): Stephen J Luczo Director Bought $2,248,500.00 in shares.

My take: I thought they would be strongly punished for buying eTrade. At this point, if you want to get involved with money managers you could do a lot worse investing in MS.

Delta Air Lines (DAL): Berkshire Hathaway Inc Major Shareholder Buy 976,507 shares @ $46.40 $45,309,924.80 also David S Taylor a Director Buys $46,260.00 shares

My take: The more intrepid of you might be tempted to buy the airliners.

Nielsen (NLSN): David W Kenny CEO Bought $1,001,632.00 in shares.

Six Flags Entertainment (SIX): Ruchim Arik W DIR Bought $44 million shares.

My investments: I don’t tend to highlight my long term investments, but I have positions in all the med-tech names I listed: Teledoc (TDOC), Dexcom (DCXM), Atricure (ATRC), Exact sciences (EXAS), Tandem Diabetes (TNDM). I also have SIX, and PGNY as investments.

My Trades: I am still holding call spreads in GOOGL, SHOP, TTD

Disclosure: I am/we are long PGNY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have investments in I like Teledoc (TDOC), Dexcom (DCXM), Atricure (ATRC), Exact sciences (EXAS), Tandem Diabetes (TNDM) and SIX Flags (SIX)

I have trades in call spreads for GOOGL, TTD and SHOIP. I am looking at AMZN and MSFT and looking to buy in.

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