Tao Economics

This is a good follow up to my S&P warning / Nvidia warning

Darshan shows that oil as a 10 year leading indicator for the S&P

From Dorsey Intel.

The Reckoning Has Arrived: my latest fix on McClellan's ~10 year leading indicator (https://lnkd.in/eF6YbgeM) paints a grim picture. Expect 🐻bearish Risk OFF market behavior through the end of the year, followed by a relief rally ~ Q1'25. Despite higher volatility ahead, good arbs (🐂long:short🐻) exist in BTC:Tech (AAPL,QQQ), DefAero(BA,EADS,NOC):Cyclicals(F,TSLA,XLY), and Coal,Steel,Wood,Paper:Semiconductors.

Giving a heads up here. If you have large retirement accounts, it would be good to check the index funds you are invested in right now.

Here are the current weightings of the S&P 500 index.

https://www.slickcharts.com/sp500

Top 3 below:

1 Microsoft Corp MSFT 7.02%   

2 Apple Inc. AAPL 6.99%   

3 Nvidia Corp NVDA 6.27%

If you are heavily invested in a S&P 500 index fund, 20% of your holdings are in these three stocks.

All 3 are fantastic companies, but extremely overvalued. Especially Nvidia, which is reminiscent of Cisco Systems during the 2000 tech bubble.

If you have $100K in a S&P index fund, then $20,000 of which would be in these three companies.

You may also have some overlap from other funds.

Chart wise, Nivdia is looking bearish short term ~2 months.

Given that, I don’t know what these stocks will do tomorrow, next week or next month. They could always go higher. This post is so that you are aware of what is in your retirement account and if you are currently comfortable with this allocation.

If not comfortable, it would not be a bad time to re-adjust.

The VIX which measures volatility in the stock market is at extreme lows going into June.

With the lawfare and conviction on Trump, the economy cooling and war drums continuing to beat, it is easy to see an increase in volatility over the coming month(s).

Markets hate uncertainty.

I’m buying Ticker VXX as a short/midterm hedge today. This is not a long term hold, and if there are any rapid gains (share prices in the $14 - $17+ range) I will likely take profits.

https://finviz.com/quote.ashx?t=VXX&p=d

I’m expecting a one to two month holding period. Have to see it as it comes.

For something more for a larger position size I’m thinking something more like SGOV for a wait in see: https://finviz.com/quote.ashx?t=SGOV&p=d It pays 5% and its treasures that expire within 0 to 3 months.

I also do not believe government bonds are a long term hold though. We are in a wave where assets move from public (government) to private assets (stocks, real estate, PM’s, crypto, collectibles).

Including an interesting chart of % of stock dividends above treasury yields which could be signaling some pain coming up.

Capital may be confused on what to do short term, we could see a short term correction in tbill yields while markets correct.

We will be entering a war economy. We are at the end of the monetary cycle and the politicians and those in power believe they need war in order to remain in power as they can use war as an excuse for monetary problems that they have caused.

I asked Brave's AI what assets do well under a war economy and it spit out the following:

Under a war economy, certain assets tend to perform well due to the increased demand for defense-related goods and services, as well as the government’s focus on national security and infrastructure development. Some of these assets include:

Defense contractors:

Companies that produce military equipment, weapons, and services tend to thrive during times of war or heightened military activity. These companies may include those involved in the production of aircraft, ships, tanks, and other military hardware, as well as those providing services such as logistics, maintenance, and training.

Technology and innovation:

The rapid development of new technologies is often driven by the need for military superiority, leading to investments in research and development, particularly in areas such as artificial intelligence, cybersecurity, and advanced materials.

Infrastructure development:

War economies often prioritize infrastructure development, including the construction of roads, bridges, and other critical infrastructure, which can lead to growth opportunities for companies involved in construction, engineering, and related services.

Energy and resources:

Wars often require significant energy resources, leading to increased demand for fossil fuels, alternative energy sources, and related infrastructure. Companies involved in the extraction, production, and transportation of energy resources may benefit from increased demand.

Healthcare and medical services:

Wars often result in increased demand for medical services, including emergency care, rehabilitation, and treatment of injuries and illnesses. Healthcare providers, medical equipment manufacturers, and pharmaceutical companies may experience growth during times of war.

Government bonds:

Government bonds, particularly those issued to finance war efforts, can be a safe-haven asset during times of conflict, as investors seek stable and secure investments. Precious metals: Precious metals such as gold and silver often serve as a store of value during times of economic uncertainty, including during wars, and can provide a hedge against inflation and currency fluctuations.

Cybersecurity:

As wars increasingly involve cyber warfare, companies and governments invest in cybersecurity measures to protect against cyber threats, creating opportunities for cybersecurity companies and professionals.

It is essential to note that these assets may not always perform well during times of war, and their performance can be influenced by various factors, including the specific nature of the conflict, the effectiveness of military strategies, and the overall economic conditions.

The only one I do not agree with is government bonds. The is no plan to pay these back and countries that find themselves at odds with the U.S. are selling long term treasuries.

Under energy and resources, I believe it should have elaborated more on the inclusion of base metals and soft commodities as war is highly inflationary.

I have started a portfolio in my stop loss tracker google sheet. I will be making access to it shortly. It is going to get really tough. The WW3 portfolio should help.

Great interview with George Gammon. One note I wanted to call out around the 50 minute mark. George talks about what the pros do versus retail investing.

Watch the interview here:

..most retail investors I would argue spend 99% of their time trying to figure out what to buy or what not to buy and they spend 1% of their time on the portfolio management the money management or the risk management and from what I can tell the pros do the exact opposite

It's worth watching the entire interview.

If you need help on risk management, you can use google sheets to track your stop losses. For more details check out: https://taoeconomics.com/products/dynamic-trailing-stop-losses-using-google-sheets

Or get started right away here: https://stoploss.productdyno.com/pay/YZQJE2TY

The silver/gold ratio is hitting 90 and above again. As you can see from the long term gold/silver ratio chart these are extreme levels where silver is cheap compared to gold.

The large spike from covid can be somewhat misleading as even though the spot price tanked, premiums over spot sky rocketed.

While the silver chart looks messy, buying today is a good deal for the long term. Right now it's in the $22 range: https://finviz.com/futures_charts.ashx?t=SI&p=d

The move is from public (gov debt) to private assets. So any private asset that looks cheap buy it.

For online buying just go to APMEX's deal page: https://www.apmex.com/deals

Cheers