Outlook for March 2017

The insanity continues! The DJIA continued posting all-time highs for 12 consecutive days in February. One would think that investors would care about valuation and safeguard their hard earned dollars, but since There Is No Alternative (TINA), US stock market investors continue getting herded to the edge of the cliff. What I do find amusing in the financial media is that there is acknowledgement that things are getting worse (earnings forecast and guidance is terrible, stock buybacks are slowing etc), but just haven’t reached fever pitch hubris as in past bubbles. Waiting for the market to get that state just seems like a recipe for disaster as every Joe Investor likes to call non-participant morons for not participating and reminding “Time in the market is more important than timing the market”. If I had a penny everytime I heard that mindless phrase thrown around, I’d be a lot closer to retirement 🙂 

Outlook for March 2017

The odds of a US Fed rate hike have been climbing for the past few days and the Fed’s hand may be forced to raise now by another 25 basis points. Keep in mind that multiple raises were promised as the US economy is perceived by the Fed to be red hot/high pressure.

While most attention is focused on the interest rates, I am more interested in seeing how the debt ceiling debate goes. The US will hit its debt ceiling (again) in March 2017 and will need to be raised. It is not a question of whether they will raise, but by how much. How far will the can get kicked down the street? The modern monetary system is built on debt and debt ceilings have to keep climbing as the financial system will otherwise collapse. This raise in debt ceiling will have effects on a lot of things of course, as we borrow from future debt-laden generations and will eventually start chipping away at the value of US currency — which is what the Fed really wants — based on their inflation target. These issues, combined with the broad stock market climbing to ever higher levels and more geopolitical issues out of Europe and Middle East is why I have increased my exposure to the ultimate safety trade when there are tremors in the financial system – Gold (and Silver).

Not only do the precious metals give my portfolio the insurance that it needs, but being in the second year of a new bull market has provided with me some lucrative growth opportunities. Yes, its a volatile sector, but when you invest early on in a bull market, there is more room for error as I investigate and invest in little known companies outside the mainstream space. As regular readers may have heard in some private messages with me or on social media, I see investing in companies like IBM and Target (TGT) much more riskier than investing in a junior gold/silver producing company such as B2Gold (BTO.TO)(BTG) or Pan American Silver (PAAS).

Looking for some investment ideas? Be sure to check out the Top 2017 Investment Picks from the blogging community.

Our current portfolio looks like this:

As it stands, our portfolio diversification is as shown below.

What is your outlook for March 2017? What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist? What do you think of the current market levels and buying here? Make sure to leave a comment below.

Disclosure: Our full list of holdings is available here.

8 thoughts on “Outlook for March 2017

  1. My ambition is to have no outlook… It is hard, in reality, I don’t know what stocks, bonds, gold and others things will do tomorrow.

    I try to look for assets that seem unwanted by other people. I either buy those or sell puts against them.

    As I can not stop my crystal ball feelings, I do think it is time for a correction. The last time I said that was June 2016. SPY was at 209, today it is at 238. No major drop in that timeperiod…

    So, I just try to stick to our system.

    • It is a tough call…trying to guess the future does not really work for anyone. But we can make decisions based on current state, which is the next best thing we can all do in investing. I thought people were crazy to keep buying the S&P500 at 2200, but here we are pushing 2400! Will be interesting to see where things go from here.

      Thanks for stopping by
      R2R

  2. Thanks for sharing your thoughts R2R. I don’t know if you were active in investing back in the late 1990s as the Dot Com bomb was topping out, but this has most of the hallmarks of that situation…..the difference is that the object of desire is the “whole market” through passive index ETFs.
    1. Phenomenal bullishness….much fueled by the fear of missing out and the frustration of the markets moving higher in unison.
    2. Sudden and enormous participation by retail investors, as indicated both by reader emails and the the $87 billion of (retail) investor money that the government said has gone into passive funds over the last 2 months.
    3. Inordinately high valuations…..as determined by CAPE, conventional trailing P/E and forward P/E
    4. An 8 year old bull market in equities, which is the second longest in the last 100 years
    5. A Federal reserve that is finally raising interest rates….and if they are to be believed…..will raise several times this year

    I recognize that the above mostly discusses the US markets, but I think they are a reasonable example of what is going on. Like you I’ve had a ton of cash on hand, and will continue to. Also like you, over the last year I have invested a fair amount of money in the precious metals space……although I have sold some recently. My approach right now is to make a few select swing trades and wait this out. It worked well last year when our portfolios underperformed the S&P 500 by about 4.5%…….not bad on a risk/reward basis considering 70% cash.

    It could go on for a few more weeks, a month, or a year……but given current valuations….meger earnings results….and rising interest rates, companies need to either generate substantial growth or watch their expensive stocks sell off. This is kinda fun and frustrating at the same time.
    -Bryan

    Next two swing trades will likely be in the precious metal space and Vanguard’s Emerging Markets Index ETF (VWO).

    • Thanks for sharing your watchlist, Bryan. PM space does provide some good options for swing trading. The volatility helps in booking some profits regularly if you choose to.
      You have summarized all my fears about the state of the financial world pretty well. I just recently read that the retail investors are piling in now thanks to FOMO and the institutions are selling out. Its the perfect setup, isnt it? Bring in the mom & pop investors and tell them that the “bull market is just getting started” 8 years into a rally. What a load of bull…

      Anyway…hopefully we will get some interesting action sooner rather than later. I am not in as heavy a cash position as you are — sitting at ~30% gives me enough fire power in case the market provides me with some good opportunity.

      Best
      R2R

  3. I personally stick primarily (though not 100%) to dividend stocks with companies that have great long term fundamentals, ensuring that I’ll be good no matter what as McDonald’s/Coca-Cola will continue to sell hamburgers/soda no matter what. But I’m with you on the idea of diversifying into precious metals. I own some gold, silver, and copper bullion myself. But wouldn’t mining companies count as stocks, meaning that you are just concentrating your stock portfolio into one industry?

    That said, moving money into gold/silver assets (either mining companies or actual physical bullion. No paper “futures” or anything) is great as to serve as a hedge against declining fiat currency (not so much a plummeting stock market, in my opinion, as again one should be investing in high quality dividend payers without concern over the price of the stock).

    I may have to do a little market timing with my 401k. I’m in 90% stocks and 10% bonds right now. Maybe I should increase my bond holdings until the market crashes, and then switch to a stock-heavy portfolio once we’re at the bottom.

    Sincerely,
    ARB–Angry Retail Banker

    • Hi ARB,
      I think you have the right idea there — stay diversified. What that means is that your overall returns may not swing wildly but atleast your exposure to all those assets will provide you with the insurance you need.
      Your concerns are rightly placed. Mining stocks are still stocks, albeit concentrated in one sector. But the miners are leveraged plays on the underlying metals — so, in case of a crisis the safety trade of gold/silver will protect my portfolio from plunging. Of course, holding miners comes with its own risks — which is why I want to stay diversified inside the mining space too.
      As far as your stock/bond portfolio…that is pretty heavy on the stock side. Have you considered non-US bonds for your portfolio. From a diversification perspective, EM bonds provide some great risk-reward which is why I am buying heavily each month lately. Funds like VWOB pay north of 5% and the risk profile is very unique and different from most other assets — Research Affiliates has a chart on their site showing how the risk/rewards plot currently. Have a look.

      cheers
      R2R

  4. JC says:

    This rally has been pretty crazy to see. I felt that even before the valuations were at best slightly above fair value and now things are just getting crazy. It seems like the market is pricing in that all of Trump’s pro business policies will be passed with no push back. Now granted should the corporate tax rate actually be lowered then that would go straight to the bottom line as increased profits. But I’m doubtful that it would lead to a 20% increase in profits since many corporations are already paying lower effective tax rates than what is being proposed. I’ve started dabbling in some options moves with the gold miners, although those positions have been getting crushed since I put them on. Luckily the IV remains high so I can still collect decent premium on the calls when likely all of the puts get executed barring a big reversal during March. Of course they certainly can do that. I’m still trying to keep active in the market via options but I’m wanting to be more aggressive with getting positions closed and locking in profits. I’m not going to abandon the fundamentals of investing and that’s to buy something at fair value or less so I haven’t really been putting new capital to work directly in the stock markets.

    • Sounds like a good mindset, JC. Being focused on the fundamentals and looking for good quality businesses trading at or below fair value is the way to go. With the broad market driving up everything, I dont see the point in overpaying for most of the stocks these days. I recently read a great quote from Howard Marks: “(paraphrasing) Bad money drives out good money”. As the FOMO traders move in and drive up the stock prices, people who focus on the fundamentals have to simply book the profits and leave when the prices go into the nosebleed section.

      I noticed your option trades on GDXJ — a great ETF to own if you are assigned and end up buying it. Once it bounces back up, you can write some calls on it too.

      Best wishes
      R2R

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