Not Rocket Surgery

 Do you want to talk about GME and Reddit, gossip and repetitive takes from the finance "experts" or do you want to talk about something that actually matters for the overall market?  The game is not that complicated, but many of us make it so.  Most of the time, simple logic is good enough. 

We are getting a bunch more stimulus thanks to the Democrats' die-hard belief that government spewing cash to individuals, state and local governments, and for pork projects somehow makes the Rona go away.  And with budget reconciliation, the Dems only need to please their most conservative Senate member, who is Joe Manchin.  So you are going to get a lot of pork for West Virginia and for whoever gives him the financing for his campaigns.  That's the price Biden has to pay to ram through a stimulus bill with only Dem votes.  

So we are going to get at least one more stimulus bill jammed through with only Dem votes, so its probably going to be close to $1.5 trillion.  Half of that money is going into a black hole that has no connection to Covid relief.  A lot of that stimulus money will flow towards the stock market.  Because most of the money will end up going to people/corporations that don't need it, so what do people and companies do when they get money from heaven they don't need?  They invest it.  And most of it ends up either in stocks or bonds.  

In order to finance this stimulus, they will issue Treasuries, so you have Treasury issuance to give people money to buy stocks and bonds.  So you have net increase in bond supply, and a net increase in stock demand.  So until the stmulus works its way through the system, or is sufficiently front run by the market (not there yet), you will have net upward buying pressure in stocks and corporate bonds, and selling pressure in Treasuries.  

So the best strategy for the next few months while the stimulus hits the economy is to either buy the US stock indices, or sell Treasuries.  

Sure, in the short term, you will have fluctuations, but if you look beyond that, the upward pressure on stocks will come to bear.  

The short term is a hard time frame to predict, but as you look beyond a few days and weeks, the longer term supply and demand factors play out.  That's why I'm still holding my long SPX position, although I will be looking to reduce it in the coming days because the weakness in bonds is an early sign that the rally will soon top out.   

The quick V bottom on Monday and rallying strongly into Tuesday tells me that a lot of investors were waiting for the all clear to buy the dip.  Now that SPX is closer to all time highs, its a bit harder to predict the next move.  I do eventually expect much higher prices in March, but will there be another dip before that, or will it just keep going higher with minimal pullbacks along the way?  That is a harder question to answer.  

Its hard enough to predict the destination over 2-3 months, but to also try to predict the path to the destination is almost impossible.  It is trying to seek perfection and the markets usually don't reward perfectionists, just speaking from experience.  

But selling some of my position near all time highs frees up the dry powder that I could use to take advantage of any dips this month.   If you don't sell, you don't have the free cash to take advantage of the buy the dip opportunities.  So the plan is to sell about half either today or Friday and keep the rest for much higher prices.  And if there is another sharp dip like last week, then I will use the cash freed up to buy again.  Rinse and repeat.