Week 31 of 2022 — Don't play against the Federal Reserve

“Never go against the Federal Reserve” is a Wall Street proverb. However, the US stock market did not believe in this evil last week. Several Fed officials have made hawkish statements one after another, yet the stock market still turns a blind eye to this negative news, and even the funeral was happy to be held. It was only on Friday that its intentions declined a bit after the release of employment data that twice exceeded expectations. The Nasdaq still surged 2.3% throughout the week.

The five-day volume and price chart of the NASDAQ

The job market can no longer be described as hot
The employment data released before the market on Friday is the most important macroeconomic data of the week. This is one of the two most important figures in the Fed's interest rate hike decision.

The expected value of the newly employed population is 250,000; the actual value is 525,000, which is more than double! The unemployment rate has also reached an all-time low. This kind of data can no longer be described as “hot”; it is necessary to use the term “very hot.” Immediately after the data was released, the Biden administration came out to the credit, saying that under their wise leadership, the US economy has not fallen into recession; you see, everyone can find a job!

Source: Huitong Finance

On the other hand, the average weekly wage increase also slightly exceeded expectations by 5.2%. This is an ominous sign of efforts to reduce inflation. As the cost of wages rises, it is difficult to fall, so it is interesting that the stock market reacted to the decline on Friday.

The probability that interest rates will be raised by 75 basis points in September has increased dramatically
After the release of strong employment data, the probability that the market would bet on a 75 basis point increase in interest rates in September, surging to 68% from 34% a day earlier.

The rate inversion has reached a new high since 22 years
As a leading indicator of economic recession, the ratio between 10-year treasury bond interest rates and 2-year treasury bond yields has been inverted for over a month. Not only has the inversion been the longest since this year, but the magnitude of the inversion has also reached a new high since 22 years.

There is a high probability that the US economy will decline in the 6-24 months after the reversal occurred. Over the past 100 years, this indicator has been tested 15 times, with only 1 exception.

The current market has not measured the risk of a conflict between China and the US
On Monday night, when 100,000 people were relentlessly following Pelosi's landline aircraft, the flames of the situation in the Taiwan Strait seemed imminent, but the US stock market was idling, and it was not at all the same thing. I don't know if the information behind the funding is too well informed, or if their judgment is too accurate.

Source: Lianhe Zaobao

However, I don't think that the probability of a military or economic conflict between China and the US is zero; I attribute the current state of the stock market to being too optimistic. In the end, this risk has to be priced.

This week's action: reduce positions!
The upward trend in the general market has abated this week, but much of the fundamental news is not optimistic, so I have drastically reduced my Sell Put positions, including Microsoft with 6 hands of 300, Tesla with 1 lot price of 700, Tesla with 1 lot price of 850, and also sold the CC of COINBASE. Settle the profits that have already come out into safety, and at the same time reduce the leverage ratio to prepare bullets for the next wave of pullbacks.

My real trading history

1) $Tesla (TSLA) $: Decrease your position!

The news of Tesla's 1 split and 3 stock split was announced, but the stock price plummeted 6%. This is a typical fact of buying and selling. A stock split won't help fundamentals; it just increases the liquidity of the stock. I closed my 2nd consecutive Sell Put position on Monday, which drastically reduced my leverage and at the same time secured the profits that had already come out.

My real trading history

My real trading history

Anyway, I definitely wouldn't go after Tesla over 900.

The next step in my position increase plan is to sell a Sell Put with an exercise price of 800, if I can see a price of around 800; if the price is below 750, I will buy 30 stock shares.

2) $Microsoft (MSFT) $: Close SP arbitrage

Sell Put, which had an exercise price of 300 before, was too optimistic. I was under a lot of pressure during the downturn, but now it has finally surfaced, so I quickly settled on arbitrage.

My real trading history

If the price is below 270 next week, I will increase my position by buying a LEAP Call or sell put with an exercise price of 270.

3) $Nvidia (NVDA) $: Continue to wait for a pullback

Nvidia will release financial results on August 24.

The uncertainty of the chip industry has increased dramatically since this year, but Nvidia's early layout in AI and cloud computing has given it a deeper moat. If the price is below 160 next week, I will buy LEAP CALL to increase my position.

4) $DBS Group Holdings (D05.SI) $: Waiting for an opportunity to sell

As expected, the financial results released by DBS this week were very steady. Like the other two local banks, net interest income in the second quarter increased by double digits, which is in line with the fundamentals of Singapore's economic growth. Corresponding to the expectations of the Fed's interest rate hike, growth in the third quarter is also expected to be steady and predictable.

I have always believed that bank stocks are the best way for retail investors to bet on Singapore's economic growth. The combined weight of the three major local bank stocks accounts for 38% of the Straits Times Index. If Singapore's economy is good, bank stocks will not be bad; if Singapore's economy is in trouble, bank stocks will not be good anywhere. Friends who want to start may wait after dividends are paid. The Singapore stock market is not like the US stock market and is not likely to fluctuate. If you want a good price, you need some patience.

Source: Singapore Lianhe Zaobao

The dividend of 0.36 yuan per share was also in line with expectations. One of the major features of the Singapore stock market is that the dividends are plentiful. As long as you invest money in the long term, the 4% dividend will generally not escape over a year. If you can choose a better buying point, the 5-7% yield is stable and steady. If you still want to go even higher, it means you are too greedy.

However, my opinion on COINBASE remains the same. Its moat among peers is mainly in terms of compliance and commercial reputation, rather than long-term technical advantages. Therefore, after the stock price reaches the range I set, I will clear my position on COINBASE.
Don't forget the original intention
The purpose of our investments is to make our lives better, have more time with our families or do the things we love, not the other way around.