Did the Swamp Win?

Trump Care, Obama Care or tax reform? It was really all about tax reform and not the Affordable Care Act (ACA aka Obama Care).  The shelving of the vote for reforming ACA may lead to markets being buoyed by the fact that Trump will now move on to tax reform.  It was never really about the ACA replace and repeal for Wall Street. The market was just looking for this to pass so that the administration could then move on to tax reform. A shelving of replace and repeal allows the administration to move on to tax reform as the ACA dies a slow death. Remember a yes vote would have just sent it to the Senate where it would have moved at a snail’s pace distracting the administration, delaying tax reform and distracting markets.

Lots of warning signs. The technical aspects of the market are growing less positive. Markets had reached such overbought levels that the next thought from market analysts is to say that there is negative divergence. In English please. Suffice to say that just means that the next up move will not have the same firepower as the last one and market participants could get nervous and pare back longs. By way of Arthur Cashin, we see that according to Jason Goepfert at SentimenTrader hedge funds are pulling back.

“After reaching one of their most-exposed levels in 15 years, hedge funds have started to lessen their positions in stocks. There have been three other times that they were as exposed as they were in the past month, and when they started to pull back and volatility rose, stocks fell hard, fast.” 3/24/17

 Ally Financial and Ford Motors both warned about a drop-off in the car market here in the US. Ally Financial slashed their earnings outlook as they see the worst used car prices in 20 years. Make sense. Have you bought a new car lately? It’s not a car. It’s a computer and we all know Moore’s Law and how our technology gets outdated quickly. Used cars are not nearly as safe as a car made today and the technology is improving rapidly. Pretty soon insurance companies are going to catch on that it is much less likely that a new car is going to get into an accident than a used car without all the latest safety technology. Morgan Stanley came out this week and said that the latest offering from Tesla will be 90% safer than cars currently on the road. Buying a used car in the past seemed frugal. Now it seems almost reckless. Used car prices are dropping. Since the crisis, banks have been extending the length of car loans from 3 years to 7 in some cases. Oops! The banks may have done it again!

This week the market actually saw a daily decline of over 1%! That is the daily decline of 1% or more since October of last year. Think we were overdue?  Turns out that Eric Mindich, of Goldman Sachs fame is getting out of the hedge fund business. That may have helped contribute to the weakness we saw this week. Mindich’s Eton Park hedge fund ran over $12 billion at its peak. It is now returning money to investors and market players may have shorted stocks in front of the liquidation of their positions. A time honored Wall Street tradition of making money off of someone else’s demise.

RBC’s Charlie McElliggott has been proffering some interesting analysis by way of zero hedge. Click on the link for more detail. Careful it gets a little wonky. Suffice to say that Mr. McElliggott seems to be saying that the more volatile things get the lower the market will go. If things stay quiet the market will continue to levitate. Keep an eye on the last 30 minutes of trading as they are the “tell”. He also goes on to say that more and more money is going into the same trades and strategies. Same side of the boat theory. Never ends well when everyone is leaning the same way. We couldn’t agree more with McElliggott and his team at RBC.

A lot depends on the perception of the Trump Administration post vote. Is tax reform coming or has the swamp won? Keep an eye on the last 30 minutes of trading.  We still think that this could be the last 10%. Markets are a touch oversold but caution must still be paid.  We are pressing the bets with our more aggressive clients but pulling back for our more risk averse. A move lower at this juncture should be met with buyers down 5-8% from the highs while history tells us that the old highs will be approached again. That is when the real decisions will need to be made.

I  think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

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