Baruch College, a city college that I attend, got mentioned on WSJ. Big deal. And it has to do with trading. Big deal.
Minutes after I finished reading the article that morning, the article started spreading around like a wildfire. It was the talk of the town.
The next day, I decided to stop by the trading floor at my college quickly to export important statistics to PDF. What I didn’t know was that CNBC was about to go live.
So I’m sitting on Bloomberg Terminal desk with a trader discussing the current events and S&P 500. We were in a deep conversation and CNBC decided to live stream a portion of our passionate conversation…on mute, unfortunately.
First I was interview by Bloomberg. Now, I was on CNBC live, but not interviewed. In other words, millions of people watching CNBC did not know my name. Say my name.
As to blogging, I’m not 100% sure if I will be able to write articles. If I can, I plan to write it and publish it here on Out of WACC. If not, you won’t see new articles until the end of August/early September.
At 17-years-old, Donald Trump was named a captain for his senior year at a military boarding school. Spending five years at New York Military Academy, the school taught Trump to channel his aggression into achievement.
Under the Trump budget, almost every budget increase goes to military departments, 10% increase Y/Y in the budget for military spending. It’s not a rocket science to figure out Trump madly loves force.
Even Trump’s Secretary of Defense loves force. Mad Dog James Mattis once said, “It’s fun to shoot some people. I’ll be right up there with you. I like brawling.”
At his confirmation hearing in January, Mattis said, “My belief is that we have to stay focused on the military that is so lethal that on the battlefield, it is the enemy’s longest day and worst day when they run into that force.”
Then there came 59 Tomahawk missiles to military bases in Syria and “Mother of All Bombs” on Daesh tunnels in Afghanistan. All of those came during the heightened tensions with North Korea.
War is Good for the Cold-Hearted Stock Market
North Korea acting out is a good thing for America. War throughout the history has made us united. Not to mention that the stock market goes up.
As you can see in figure 2, the stock market barely reacted to the recent U.S. military actions that Trump gave a green light to.
As a trader and investor, I wouldn’t be concerned about the potential war with North Korea. (Although I would be concerned about the loss of human lives and loss of limbs.)
In early 2013, there were increased tensions with North Korea, similar to today. At the time, the stock market did not give a damn about the threats from DPRK.
Not only does the stock market not care about North Korea, but also for any other war in the past century. War is good for the cold-hearted stock market.
Over the past 4 decades, Dow Industrials on average was turned on by U.S.-led military operations, returning 4% in a month after the beginning of military operations and more afterward.
Recent Three Wars
When the U.S., with support from allies, started bombing against Taliban forces in Afghanistan on October 7, 2001, the stock market went up, not down. Even after 12 days later when the first wave of conventional ground forces arrived, the stock market kept going up. By the year-end when Taliban collapsed, S&P 500 was up about 14.5%.
When the U.S. began the major combat operations in Iraq on March 20, 2003, the stock market skyrocketed as shown in the candlestick bar on the highlighted portion of S&P 500 Weekly chart in figure 6 below. By the time the operations ended on May 1, the stock market was up about 11.5%.
The only difference this time is we got leaders who very much loves forces and are violent themselves. Another difference is that North Korea is little powerful today than they were in 2013. But they are very weak compared to China, Russia, Europe, and U.S. It’s better to act now before North Korea gets even stronger. Although lives and limbs will be lost, I think there’s a greater cost if we allow North Korea to get even stronger.
China and North Korea
With China possibly increasingly going against North Korea, Kim Jong-un might act even more violent. I don’t think China really wants to break off its relationship DPKR due to the geographic proximity and China’s willingness to make more friends in the region. Besides being a military and diplomatic ally, China is also an economic ally. In 2015, the second largest economy accounted for 83%, or $2.34 billion, of the North Korea’s exports.
In late February, China sanctioned coal shipments from North Korea, who is a significant supplier of coal. Instead, China has been ordering the coal from the U.S. In the past, Trump said he wants to help the country’s struggling coal sector.
As Reuters reported, Thomson Reuters Eikon data shows “no U.S. coking coal was exported to China between late 2014 and 2016, but shipments soared to over 400,000 tonnes by late February.”
Is China having a change of heart on its relationship with North Korea? I don’t think as China’s trade with North Korea still increased by almost 40% in the first quarter of this year. China also buys other stuff, such as minerals and seafood. Looks like China wants to be on the good side of North Korea and Trump. The Art of the Deal.
Is this time is also different when it comes to the stock market? I don’t believe so. I’m not worried about the negative impact on the stock market due to North Korea, even though they were to be invaded.
However, I’m watching very cautiously China and Russia getting into an armed conflict with the U.S because of the North Korea situation. Armed conflict between the superpowers is a game changer. Although that’s very unlikely as superpowers argue all the time.
Suggestion For Your Portfolio
The situations might affect the markets for a very short period of time, especially if there’s uncertainty. But investors shouldn’t worry about it. The market could care less about a war, specifically when it’s aboard.
During the times of war, don’t reduce your holdings because of misconception war is bad. If you do, you will miss the gains.
In the previous two articles, I wrote about my forex trading and equity investments performance for the first quarter of this year. In this article, I will talk about my 1st quarter performance for equity/commodity trading.
For the first quarter of 2017, my active trading performance for equities and commodities (commodity ETFs) was up 3.51%.
For years, I could not trade equities and commodity ETFs due to commissions. Thanks to Robinhood, I’m not able to trade for free.
I closed the SCO position a month later at 22.55% gain, the biggest gainer of all positions closed during the first quarter of this year.
My biggest loss came from VelocityShares Daily 2x VIX Short-Term ETN (TVIX). I thought volatility would pick up in the coming month (and it did a little bit). However, after they underwent 1:10 reverse split on March 16th, I did not want to risk having the ETN go to single digits once again, so I indeed closed the position at 17.27% loss.
In nominal terms, the 22.55% gain on SCO is 3 times larger than the 17.27 loss on TVIX.
There are other positions that made and lost money. But overall, my portfolio was up 3.51% in the 1st quarter.
I can only go long securities on Robinhood. My current positions are SPXS, WFC, LULU, DIS, EXPE, VRX.
I went long on Direxion Daily S&P 500 Bill and Bear 3x Shares (SPXS), which is inverse of S&P 500, because I believe investors are underestimating the negatives of Trump’s policies. Once investors realize the negatives of Trump’s fiscal policies and/or his actual policies are less stimulative as he proposed, the market will take a dump.
A lot of people think tax rate will be reduced to 15%. I have been watching some of Trump’s TV interviews, especially on Fox News, and it seems Trump himself does not believe tax cut will be 15% or lower. He basically said it might have to be little higher, say around 20%.
I also watched Trump’s body language and I believe Trump is not confident in what he’s saying about his fiscal stimulus plan as he was during the campaign.
So when the actual plan is released, investors will be disappointed.
SPXS is also a small hedge for my portfolio as I’m long individual U.S. stocks.
And finally, I’m long Valeant (VRX). I went long on the pharmaceutical company the day after Bill Ackman revealed he cut his $4 billion loss.
Valeant recently extended the maturity of their debt until the early 2020s, which gives them about 5 years to restructure their capital and the company. Plus, they have over $5 in cash for each share.
Just because Ackman lost big on VRX does not mean he’s not a great investor. He is a great investor (that’s why he’s rich?). If you watch his presentations and talks, he knows about he’s talking about. He does his research and deeply cares about other people. At least that’s what I think.
The current positions I mentioned above can change at any time or reverse. Thank you.