I was excited to buy more of my favorite stocks on Wednesday morning when I heard that there was panicky, possibly fearful selling of stocks occurring upon the news of Donal Trump winning the presidential election. Unfortunately, I did not get a chance, as the sell-off was short-lived and by the end of the day on Wednesday, November 9, I was selling some shares of stocks that overreacted positively to the news flow about the election. While there are great bargains to be found in any stock market if one is a patient fundamental investor, today, November 10, I am selling more stocks for the following reasons:
(1) I trust the bond markets more than the equity markets; bond yields are rising on the order of a 3 standard deviation event, according to Bloomberg; while this sell off may be due to optimism that world economic growth may accelerate, I am skeptical because of overcapacity of aggregate supply in China, European banking woes, and the instability of the European Union with talk of an "Ital-leave" possibly as an encore to "Brexit"
(2) corporate earnings are not THAT good; low expectations are being met in some cases, but corporate outlooks are subdued
(3) stocks of companies clearly in the eye of the storm of the Chinese economic slowdown (i.e. CAT, which I am short in a big position) are rising rapidly, which is inconsistent with their fundamental earnings outlooks
In my long-term retirement accounts, I remain partially invested in small positions in the stocks that I want to own for a long, long time (decades hopefully), but in my more trading-oriented cash account, I have a net short position that has increased by 5% in the last 24 hours due to short positions rising against me and my decision to sell many of my long positions.
Jim Lane
