Print the page
Increase font size

Posted March 09, 2022

Sean Ring

By Sean Ring

Things You Can Do to Hedge

  • Im not allowed to give stock recommendations, but here are some broad strokes.
  • Also, keep up with the Rude Pillars to Financial Freedom.
  • A second passport, an online business, and some crypto come in handy now.

Happy Hump Day!

Forgive me for quoting that awful bastard Lenin, but hes got this one right:

There are decades where nothing happens, and there are weeks where decades happen.

It sure feels like a decade has happened over the last week, especially if youve been long equities.

We had another down day yesterday, and weve started to string quite a few together.

Of course, well have some up days from here.

But you still have time to build the proper defenses for yourself and your portfolio if you havent already.

The BTFD days (Buy the F*cking Dip!) may well and truly be over.

That depends on how antsy Jay Powell gets about his punch bowl.

I think that also depends on whether Joke Biden will start to pressure Powell into staying his hand on rates.

The problem is Powell admitted the Fed got inflation wrong and has confirmed the Fed will raise.

So the Fed currently remains steadfast or stubborn, depending on your viewpoint.

But I wouldnt completely rule out a last-minute stay of execution from Powell that whipsaws the market.

Its a low probability play, I admit. But its possible, especially in a midterms election year.

Anyhoo, here are the things I think you should have a look at to protect you and yours from volatility we havent seen since 2008.

Relative Rotation Graphs

Before I get into the things you may do to shield yourself from the coming onslaught, let me show introduce you to relative rotation graphs.

Julius De Kempenaer at RRG Research invented them, and I use them on stockcharts.com.

Theyre incredibly useful for seeing how asset classes, indexes, sectors, and stocks have performed over time relative to the market.

To put it plainly, they show whats hot and whats not.

I wont explain the ins and outs. Stockcharts gives a nice tutorial here.

What you need to know for now are these things:

    1. The chart is a scatterplot, not price against time.
    2. There are four sectors: leading, weakening, lagging, and improving.
    3. Stocks rotate (usually) clockwise. That is, a stock will lead, then weaken, then lag, then improve, and then lead again.

Heres an example of whats going on right now, from an asset class perspective:

We all knew commodities were shooting the lights out. Now heres our proof.

Both the GSCI (Goldman Sachs Commodity Index) and the Bloomberg Commodity Index Total Return (total return includes all returns, not just capital gains) have earned well into double-digit returns over the last five weeks.

Though you might think youve missed the boat on this, Im pretty sure you havent.

In fact, Putin is about to announce commodity export bans to Western countries. This came just after Biden announced the US would ban imports of Russian oil.

Good luck at the gas station!

Or is it?

Bear with me here.

Richard Mayberry, right after 9/11, said to buy aerospace and defense stocks, as the US was gearing up for war.

You may think thats immoral, but its smart investing. (I wish I listened!)

How did that work out?

Amazingly, even if youre still hanging on today.

In essence, whatever those investors paid out in military tribute to the government - sorry, taxes - they would have made up with this investing strategy. Easily.

Lets apply that playbook to the here and now, though it certainly wont be a 20-year trade.

If you buy the energy and commodities stocks thatll benefit from Bidens insane sanction strategy, youll offset the higher costs of your gas, cereal, and pork.

There are a few ways to explore this.

Energy and Commodities

This is the obvious asset class to be in right now.

No, I dont think youve missed the trade. This may last well into 2023.

Gold

Gold has broken out to over $2,000. Finally.

Jared Dillian of the Daily Dirtnap says hes hanging on until $2,600.

Jared is one of the savviest traders out there, so its a good bet were heading up another 30%.

Silver

This one is more of a bet, but it, too, has finally shown some signs of life.

If it gets above $30, were probably heading to $50.

XLE

Back to the RRG graph.

This is a snapshot of the S&P sector ETFs.

XLE is in the upper right-hand corner, killing the rest of them. No surprise there.

If we break down the XLE by its constituent stocks, you get this:

Again, I cant recommend stocks for you, but heres a nice place to start your research.

Its worth noting that while Warren Buffett added to his position in OXY, Carl Icahn divested himself of it.

SPY Puts

Buying put options to protect your existing portfolio is a relatively cheap hedging strategy.

In yesterdays Rude, I wrote that the SPX might head down to the 3,200 area, nearly a full 1,000 points south from here.

If you have a portfolio of familiar large-cap names or a portfolio that doesnt have energy in it, you may want to look at this strategy.

Selected Real Estate

In this, I like two particular ideas.

Mark Moss, whos recently done a great Wiggin Session with Addison, favors high-end properties that you can hole up in while the mess continues outside.

Thats assuming, of course, were not all glowing in the dark soon.

I also like multi-family houses near hospitals, fire stations, and police stations. Those people arent going to lose their jobs.

The Rudes Plan

To reiterate, the Rudes Four Pillars of Financial Freedom may be overkill, but I want to remind you this is more about the freedom part than the finances part.

Second Passport

Hopefully, youre already working on this, but if not, start now.

Even if you cant get a second passport, think about a second residence.

There are plenty of places accommodating second residences, from Ecuador to Panama to Portugal.

Online Business

Visit my friend Sean DSouzas 5000bc club. Im there already, and I love it.

Its cheap - indeed the most affordable membership site for online business I know of - and its chockfull of helpful information on how to take your skills and turn them into something valuable for your clients.

Even if you dont have clients yet!

(Thats an affiliate-free link, by the way)

Crypto

I know crypto has been hit hard lately, but I still think it has a place in a well-balanced portfolio.

You dont have to put in much.

Just dip that toe in and get used to the water.

Health

Finally, get your health to the best level you can.

In an age of mandatory vaccination - which contravenes the Geneva Conventions, by the way - you need to protect yourself for the sake of your family.

Thats what theyre trying to destroy, after all.

Wrap Up

Well, theres lots to do.

But if you get it done, youre ahead of 99.99% of humanity.

Right now, theyre the deer in the headlights.

But you?

Youre the (wo)man with the plan.

Until tomorrow.

All the best,

Sean

P.S. For a chuckle, these are some of the choice memes my buddy at Libertarian Memes sent along. Have some fun with them.

Is This Rally Real?

Posted August 16, 2022

By Sean Ring

Happy Tuesday! Thank heavens it’s cooled off here in the north of Italy. I was sweating profusely in NYC and was hoping I’d get a respite back here. And while I’m enjoying the...

A Summer’s Odyssey

Posted August 15, 2022

By Sean Ring

Happy Monday from a much cooler Asti! It’s been ages since I wrote you from here, and I’m excited to be back. But my NYC trip, while infested with rats and stinking...

Enjoying the Inflation? Have Some More…

Posted August 12, 2022

By Sean Ring

Yesterday morning, the PPI number came out. This Rude was first written on December 14, 2021.  But it mirrors perfectly what’s going on today. I know newsletter writers are prone to hyperbole...

Zero Percent, Joe? Come On, Man!

Posted August 11, 2022

By Sean Ring

I’m nearly done with this graduate program and head home on the Friday night red-eye to Milan. So tomorrow’s Rude will be a re-run. From then, I’ll be writing fresh new columns...

Even Donald Trump Needs a Second Passport!

Posted August 09, 2022

By Sean Ring

Last night, I shared a wonderful dinner with my cousin, Corey, and his wife, Kim, in downtown Hoboken, NJ. Hoboken, a square mile where Frank Sinatra was born, is just across...

A Weekend in Baltimore

Posted August 08, 2022

By Sean Ring

Good morning on this fine Monday in New York City. You know what? I’m not at all cranky today. In many ways, Baltimore is cleaner and more crime-free than the Big Apple. I...