October 2019

General Comment

A broken Bull?

Ok I get it, 2018 wasn’t a stellar year (mostly because of the sharp drop in November and December, but 2019 is posing to be a rather good year for investors, balancing out what might have been missed one year ago.

As you probably know already I have adopted a bearish stance at the beginning of 2019, and I still believe that there isn’t much to be bullish about given the general situation. The point that raises more than a few flags of concern is the fact that all this bull rally seems to be fueled by monetary policies and tax cuts rather than by real fundamental growth. That Economics is a “diseased” doctrine is something I have already commented in the past (there can’t be infinite growth as there aren’t infinite resources), but nobody seems to care all that much about this aspect.

As we are just little drop in the ocean of this market we need to go with the flow I guess. October was a rather positive month, all across the board. All losses that occurred in August were taken back by the end of the month. Earning reports for Q3 were quite positive (apart from few negative ones that saw very strong negative swings), and central banks are moving towards more interest rates easing. To cap it all off it seems that the China/USA trade war is also coming to a close, after more than 1 year of talks, walk-offs and more talks.

So the future looks bright? Mmmm, I am still not sure about it, I would advise maximum caution when investing in this period. The LH Portfolio is at record highs but I haven’t had the chance of deploying much of the cash that I am keeping, I don’t see a lot of good opportunities out there.

LH FUND

Explanation of terminology and graphs is HERE.

Let’s see the numbers:

MonthTRYTERNYYoCForex
12.140.00%0.00%0.00%0.00%
12.15-3.33%1.22%-0.13%-1.00%
12.167.06%1.14%1.16%-4.35%
12.179.94%1.04%2.64%-5.94%
12.183.28%1.24%2.70%-3.53%
1.199.76%1.26%2.69%-2.75%
2.1912.02%1.24%2.69%-1.95%
3.1914.86%1.22%2.70%-1.21%
4.1916.86%1.21%2.83%-1.87%
5.1912.73%1.22%2.81%-2.42%
6.1914.41% 1.44%2.64% -3.17%
7.1916.13%1.43%2.66%-2.74%
8.1915.82%1.41%2.66%-1.98%
9.1919.11%1.39%2.75%-1.09%
10.1919.80%1.37%2.68%-1.79%

TR is increasing (vs. previous month) – Following up a good September, October saw more growth across the world, the LH Portfolio did the same.

YTER is decreasing (vs. previous month) – Costs keep falling, great news. I guess that this is because the relatively low market activity on my side, if I spend nothing, or very little, this percentage is bound to go down.

Net Yearly YoC is decreasing (vs. previous month) – Quite a big hit was taken in October, and more are caming in November and December, I fear. Main reason are the option trading, rolling means taking immediate losses in exchange for future gains, so at the moment I am piling up expiries in 2020, meaning that 2019 is seeing less returns.

Forex is getting worse (vs. previous month) – Pound still weak, Dollar a bit weaker than September, result is an increase in the currency effect that the portfolio sees. Nothing major, little by little this discrepancy will get close to zero.

Dividends and Options

While October was good all across the board, the Long Haul Portfolio suffered one of the worst results in 2019, actually the worst result for the year.

October saw a -269 Euro result.

Dividends accounted for 689 Euro (-13.4% vs.2018) and Options ended up with a -968 Euro score (-100% vs 2018).

Let’s see what got us to these results…

Let’s start with dividends… This is the second year where October ends up lower than previous years, considering that the whole idea of a DGI is to get dividends to grow, we can say that have a problem. The decrease is mostly due to stocks that I don’t hold anymore, “taken away” by early assignments on the covered call that I trade. It’s evident that I could not replace the monthly stream with new positions, this is also explained by the increase in liquidity that I have right now.

Options were the culprit (once more I’d have to say) of the bad aggregate result. Actually the score tally was the second worst score of the year. Rolling PG and BIP proved quite expensive, partly the losses were taken back by other option trades that I made, but nothing major as the hefty loss shows. Once more nothing to be overly worried about, these losses are on paper and the potential “gains” are moved to 2020, but still it’s not great to see negative numbers.

List of Options closed in October

DCA/Increased Positions

Nothing to report

New Positions – Sold Position

Bought 100 NFG @ 45 USD

Dividend Champion NFG is a pure Natural Gas play. They are a Utility in North America that distribute and sell Natural Gas. As the commodity is at it’s historic minimums, so are NFG quotations, the dividend is well covered and I like utilities as a sector to invest into (recently they have all skyrocketed and it’s impossible to find space to enter). The stock was assigned through a PUT option.

Bought 250 BIT:TEN @ 9 EUR

Tenaris is a producers of steel pipes. Multinational company, leader in this sector, produces mostly for oil and gas related industries. Despite not so upbeat financial results (oil price is quite low and new drilling is not happening apparently), I believe that the price is a bit too depressed for the scale of the company and for the sector where it operates. They pay dividend twice an year, which is nice considering that it’s a European stock.

Bought 10 PUK- @ 26.85 USD

I am going to test this preferred from Prudential, the insurance company. Only bought 10 shares because I want to see how the stock it’s treated in tax terms.

Conclusions

The broken bull picture up at the beginning of the post was taken “live” when I was in NYC in October to attend to some University matters over at the headquarters of the school I teach in. It was kind of funny to arrive there and see that the bull was under repairs, I am not sure if this is one of those “prophetic” moments but still…

It’s true that in the US, the men of the street don’t seem concerned with possible recessions and slowdowns, even at some lectures that I attended to the professors were mentioning a “not record high consumer confidence” when talking about a change of market direction. Much different from what we say in Europe, where talks of recession are much more common.

The readers might ask themselves if I am one of those 100% short that are present in the market today. It seems that I am routing for a meltdown at every post, but the reality of things is that more than a shorter (I own no short positions apart from the covered calls) I like to think of myself as a realist.

Economy moves in cycles, so there is little to do, sooner or later some down-cycle will hit the markets. The more the bull runs, the harder might be the fall, that’s all. Anyhow, the short term strategy needed a change and now I am selling naked puts only on few assets, covered calls are a play that I would do only in presence of certain conditions, the first one being the stock nearing 52wk highs valuations.

I am also considering doubling certain positions to sell immediately calls NTM on the newly acquaired stocks. With a long expiration I can get more than 1 year worth of dividends, collect the dividends till expiration and if the stock gets called away or ends INM I would let it “go” without many problems. So far I have been evaluating this strategy, but I might try it out soon.

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