The Bears Are in Control, Stick to Cash.

Bears Market

Right now, cash is your best friend in this bears market. Momentum remains highly negative across the financial markets. And Friday’s selloff has now pushed the S&P 500 under its 200-day moving average.

Today while digging through the wreckage of the markets, I found the data from the CBOE (Chicago Board Options Exchange). Today, traders were HEAVILY in put options. In fact, the number of bears put options outpaced the number of bullish call options by 1.1 to 1. That is the most bearish ratio for puts since March 2020.

The Bears Have Taken Over

Simply “put” – the bears are firmly in control. Now, rarely do I say the type of thing that I am about to state in the next sentence…

This week will feature one of the most important market events of the year. I’m not trying to be hyperbolic in that statement, but the reality is that the Fed’s meeting that kicks off tomorrow is going to set the tone for the rest of the year. 

Now that the COVID-19 financial bubble’s deflation has caught wind of retail investors and panicked hedge funds, people are now going to the Fed – hat in hand – and asking for more stimulus. Will the Fed print more money and “save” the market? Sorry everyone – the well is dry. 

The Fed’s policies were designed to promote inflation. With the supply chain dislocations and too much money chasing too few goods, inflation looks here to stay in the year ahead. Why would the Fed pump more money into this economy? To save retail investors? Don’t make me laugh that hard. 

Blame the Federal Reserve For a Bears Market?

When in the history of this nation has the Fed cared about the average American’s retirement account? Its policies after the Dot-Com and Great Financial Crisis are evidence that they are beholden to corporate banks and large corporate institutions.

Heck, the officials were buying the assets that the central bank had purchased as well. Great work if you can trade on that level on insider information. And if you haven’t noticed, all the corporate insiders sold all of their stock in 2020. Now, the bag holders are left. 

I know that a lot of people WANT to blame the Fed. But no one made investors chase Zombie stocks that were trading at price-to-sales ratios above 50. Greed did that. FOMO did that. Now, the world is on fire, and people are looking for someone to blame. 

My focus here at Godesburg’s Haven Investment Letter is to tell you where the markets are heading and teach you how to manage risk. As you know – digging through issues back to November – I have been warning about expensive stocks that produce no profit. I’ve been talking about momentum daily. I am informing you. 

We’ll start adding a red light and green light on the market. It’s blood red right now. Cash is King.

In Case You Asked

Let me finish with a small story about chance. For those of you who don’t know, I am a lifelong Buffalo Bills fan. So, last night was a very difficult outcome in their loss to Kansas City. There are 100 scenarios playing in my mind around what should have occurred with 13 seconds left in the game. 

But I do want to explain something. This playoff loss is slightly worse than the game that the team lost on January 8, 2000, in what is known as the Music City Miracle. I don’t want to go too deep into that loss. You have Google, watch the video, and see what any person with eyes should: it was a forward pass by Frank Wycheck.

That day, in 2000, I was visiting Georgetown University, which was atop my list for college. I was then a high school senior and had already endured four straight Super Bowl losses by the Jim Kelly-led team during my formative younger years. (I believe that the Super Bowl loss to the Redskins was worse than the Giants because of the first play of the game, where Harry Connick Junior’s musical team misplaced Thurman Thomas’ helmet and prevented him from scoring a touchdown. It’s an insane story).

After that Georgetown visit, my family and I went to a local restaurant in D.C. to watch the Bills play the Tennessee Titans. I remember the meal, I remember the Irish architecture, and I remember the pull-down screen with the grainy resolution. After the Bills lost the game on a last-second special teams’ fluke, I remember driving home to Baltimore. I turned to my parents and said, “I’m not going to Georgetown.” 

Embrace The Randomness

I took that game as a sign. And I ended up at Northwestern instead after a series of other events that transpired over the next 40 days both personally and academically. That event will seem irrational to many people – but… it’s how I look at the world.

If the referees in Tennessee rightfully called that a forward pass, I would have likely ended up as a college lacrosse player and then a First Amendment lawyer, and you would not be reading this. And – if yesterday’s result had turned out different, you would have been reading a much different piece today. 

That’s the nature of randomness in the world and how one decision creates a unique spectrum of outcomes that no one can predict. Embrace it. I promise that I won’t make a similar rash decision over last night’s loss. But I will probably not want to talk about football for a good seven months.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

Related Articles