Iceland

We are now sending out our weekly note by email. If you have missed us and would like to receive it by email contact me at Terry@BlackthornAsset.com. Iceland was a fantastic experience. We arrived in the wee hours of the morning and had breakfast at a local bakery picked out by our guide. Wherever you go in Iceland, the bread is absolutely the best you have ever had. I have no idea why. Even the rye bread ice cream was out of this world. The people in Iceland are friendly, hard-working, and incredibly proud of their country. We passed the President of Iceland’s office, and our guide encouraged us to knock on the door. A door without a hint of security around. I only saw one police officer the whole time we were there. It’s a very safe country with one of the lowest crime rates in the world, filled with wonderful people, and incredible food. We went on tours to Gullfoss, the major waterfall, and the Great Geysir, where the term geyser originates from. We also went for a snowmobile excursion out on a glacier. I highly recommend Iceland for a weekend getaway or a layover on the way to Europe. In fact, a quick layover will allow you to experience the geothermal spa of the Blue Lagoon and head to Reykjavik for lunch. That is if the Blue Lagoon is still there after the volcanic eruption on Saturday night. It’s probably good that we missed that.

As far as markets go, we seem to be heading towards stagflation, as indicated by gold and oil’s performance in recent weeks, outperforming the SPY by 5% in the past month. We are happy to have added to our positions there. Most portfolios are light on commodities, especially in 401K plans. When investors realize this, it will be too late.

We look at specific indicators and give them more weight in our market analysis. One of these indicators is the Goldman Sachs sentiment indicator, which is hitting overbought levels we haven’t seen in some time. No indicator means as much to us as our proprietary indicator, which indicates when markets are unprepared for a news event. That time is upon us. Systemic strategies are now very long, as are momentum traders. It is almost as if everyone is on the same side of the boat. Investors are unprepared as most expect the market to continue its run higher and see no need for downside hedges. The news event becomes market moving not based on the news but based on the lack of preparedness. It’s the old stability breeds instability theory. Our indicator is now flashing yellow and telling us that downside hedges and getting long volatility are the play. The movement in our indicator was very sharp and akin to the signal we received in Jan 2018 before the Volmageddon trade when the VIX went from 10 to 50 in a month.

We have finished Game of Thrones by the way. It was amazing. We don’t expect a Game of Thrones-type massacre in the markets. Market sentiment has been running hot, and a bit of a speculative fever has been underway. Usually, we would see a healthy pullback of 8-10% and a move back towards the old highs. Bottoms in the market are events. Tops are processes that can take longer than you think.   

This is what we had to say last time we wrote.

If a stock or index gets this high, it shows how much the animal spirits have taken over. It DOES NOT mean stocks are going to crash. It means stocks need to take a breather, and when they sell off and relieve the overbought condition, buyers will most likely start returning. Just like in 2018.

“Short term volatility is greatest at turning points and diminishes as a trend becomes established.”– George Soros 

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 

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

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

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.