The Fed takes a big hike

Well, the Federal Reserve certainly acted quickly to that CPI report. The headline number rose by 8.6% year-on-year, when they expected it to top out at 8.3% in April. They swiftly put out an article in the Wall St Journal suggesting a 75bps rate hike, as they like the market to price in rates before they set policy, and then they announced the 75bps hike on Wednesday. There was a bit of a rally on Wednesday as the uncertainty left on the announcement, but it quickly reversed in the days to follow.

The CPI number was released after trading on Friday, June 10th, and the market reacted significantly the following week:

Here’s basic commodities for that same timeframe. I had to expand the chart a bit here to get the same date range, because commodities exchanges are always open.

Wow, gold is barely down at all and siver is only down 2.2%. Surely my mining stocks…

That toilet flush sound is the liquidity draining from the system. Gold and Silver are big worldwide markets with currency characteristics, so they moved down a lot less – though everything lost against king dollar this week. Mining stocks on the other hand are small, illiquid, and volatile. A big fund or central bank can sell gold in an emergency, but mining stocks don’t share that property at all.

I actually bought a decent amount of stuff this week, as the prices of all my holdings are so much cheaper right now. Here’s where my allocations ended up:

  • HEDGES (14.0%)
    • 14.0% TLT Calls
    • 4.4% AG
    • 4.3% MTA
    • 4.1% SILV
    • 3.6% LGDTF
    • 3.0% EQX
    • 2.8% SLVRF
    • 2.7% SAND
    • 2.2% SSVFF
    • 2.1% MGMLF
    • 2.0% RSNVF
    • 1.7% MMNGF
    • 1.7% DSVSF
    • 1.5% HAMRF
    • 1.3% BKRRF
  • URANIUM (22.5%)
    • 4.3% CCJ
    • 3.0% DNN shares & calls
    • 3.3% UEC
    • 3.0% UUUU
    • 2.9% BQSSF
    • 2.8% UROY
    • 1.8% ENCUF
    • 1.6% LTBR
  • US CANNABIS (14.6%)
    • 1.8% AYRWF
    • 1.5% CCHWF
    • 1.5% CRLBF
    • 2.2% CURLF
    • 1.6% GTBIF
    • 2.3% TCNNF
    • 1.3% TRSSF
    • 2.5% VRNOF
  • BATTERY METALS (12.2%)
    • 5.9% NOVRF
    • 4.6% SBSW
    • 1.7% PGEZF
  • CRYPTO (2.3%)
    • 2.3% XRP
  • OTHER (3.7%)
    • 2.9% DOCN (cloud computing)
    • 0.6% OGZPY
    • 0.2% TWTR call
    • 0.0% ATCO calls
  • CASH (-6.6%)

My portfolio value dropped 10.2% from last week to this week. All of my uranium miner covered calls expired out-of-the-money after being in the money or close to it at the end of last week. The good news there is I get to keep all my shares, the bad news is they are down considerably.

As for buying this week, you can see that my cash balance is now at -6.6% vs -2.2% just a week ago. It is dangerous to build up too much margin debt in a raging bear market like we have, but the prices are so compelling at the same time. Also, the negative percent is a little bit misleading in that it factors in my holdings in my regular account, IRA, Roth, crypto wallet, and bank balance whereas the margin lies 100% in my regular stock trading account so I am actually just over a third of the way to my limit. Needless to say, I’ll be looking for a bounce to sell into here, at least with a bunch of covered calls.

As for what I’ve been buying … I looked at all my mining stocks with the lowest percent holdings and added to those. Those were things like BKRRF, MMNGF & PGEZF. I also added to NOVRF and SBSW in battery metals, UEC and UUUU for uranium miners, and MTA which I consider a top-tier gold & silver royalty company. I left the pot stocks alone. I’m not planning to add to those any more in the near term, just holding what I have. They’re kind of an afterthought at this point.

Buying cheap is always exciting, so you really have to keep discipline and not overdo it or you’ll get hit by a margin call on a nasty drop. I did add a decent chunk of Jan 2024 TLT calls this week too, as I expect the fed to break something sooner than ever now causing a liquidity event, a scramble for USD collateral, and a nasty recession made worse by persistent shortages in energy and food. The stupid thing is that the environment I’m calling for is not one you want to hold margin debt in. If those TLT calls soar, it will likely be after the liquidity event which could easily shave my portfolio down enough to make that margin debt matter.

Anyway, we’re deeply oversold so I’ll be looking for a bounce, and I’ll be aggressive on selling out-of-the-money covered calls at the very least at the first sign of momentum petering out.

As far as the markets go, we definitely live in exciting times. Good luck, and be careful out there!

About johnonstocks

I've been trading stocks since 2003, active on Motley Fool's discussion boards and using first Hidden Gems, then Global Gains. I no longer have the newsletters, but I keep up on the WSJ and read David Rosenberg everyday at Education: CFA level 2 candidate MBA-focus in Finance, Marshall, University of Southern California - expected Dec 2010. BS Mechanical Engineering, UC San Diego, June 2002
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