Hi Again,
During May 2018 we had a gain of 5.61% on our portfolio and the gain for the past 2 months was 6.55% while we lost 5.44% in March 2018. This truly explains what is going in the stock market right now. The stock market sky rocketed for about 15 months ending around January 2018. This happens during the last few stages of a bull market. No one knows for sure when this bull market will end and how long the next bear market soul last. We can hope for a good correction followed by a short bear market. However our strategy should be prepared for the worst so then we would be able to face any possible outcome. As I have said from day one, if you keep 25% to 50% of your funds in cash, you will be ready for any outcome.
For many years I have been ringing alarm bells about Deutsche bank, the biggest bank of Germany. They have over 70 trillion dollars in derivatives which are not on their balance sheet. Their argument is that it is hedged properly. I have studied hedges for the past 30 years and any expert will be able to tell you that there is nothing as a perfect hedge. Remember how banks felt secured prior to 2007 as they were properly hedged to take care of their mortgage activities? People did not see themselves as ‘greedy’, they replaced the word “greed” with “optimism”. Just prior to the 1929 stock market crash, JFK’s father, Joe Kennedy, first head of the SEC, saw the greed of the masses and in order to protect his assets sold off his stock holdings prior to the crash. If and when Deutsche bank implodes, there is no entity in the world capable of saving a 70 trillion mess created by this bank. The JP Morgan too has over 5 trillion in such derivatives. Last week it was in the news that US authorities placed the Deutsche bank on a watch list about a year ago.
Deutsche Bank AG just ended a roller-coaster week. June doesn’t look any less harrowing. Shares of Europe’s largest investment bank are trading near a record low, as short sellers pile on and credit derivative traders once again signal doubts about the firm’s health. It’s part of a painful pattern for the bank and its investors: Another spate of bad headlines keeps outweighing the good. First came the reports Thursday that the German lender is on a U.S. regulatory watchlist for problem banks. Then on Friday, S&P Global Ratings cut its credit rating. In a sign of dimi Deutsche Bank AG just ended a roller-coaster week. June doesn’t look any less harrowing. Shares of Europe’s largest investment bank are trading near a record low, as short sellers pile on and credit derivative traders once again signal doubts about the firm’s health. It’s part of a painful pattern for the bank and its investors: Another spate of bad headlines keeps outweighing the good. First came the reports Thursday that the German lender is on a U.S. regulatory watchlist for problem banks. Then on Friday, S&P Global Ratings cut its credit rating. In a sign of diminished standards, investors expressed relief that the grade dropped only one level. “They dodged a bullet,” said David Hendler, founder of Viola Risk Advisors and an analyst who’s followed the industry for more than three decades.(Sridhar Natarajan, Business/Bloomberg,6/1/18).
We are currently at full employment; last time it was this low was in 1969. According to economic theory, if it goes any lower, we could reignite inflation so you can expect the Federal Reserve to increase interest rates to slow down the economy. If that, the outlook for the market will be very bad.
Have a great month!
Fernando