Sold of all of my SU this week. I have used the current run up in oil prices to sell off my entire SU position.
I paid off my margin (costing 5.7%) and put a serious chunk of money in the bank. Not paying 5.7% is the same as making 5.7%. At the moment, you can get 3% for 100 day notes from your bank or 4.5% if you are willing to tie up your money for a year which makes the bank spread very low.
If you are wondering what a low spread means, it means that the banks are expecting rates to go higher and they are trying to attract deposits now.
I'm now over 50% cash.
Every time (3 times in a row now) J Pow has raised the Fed Funds Rate by 75 basis points, the market has taken a serious tumble. After a couple of weeks, it seems like the market forgets the pain and people are back buying again as if the dip is temporary. It reminds me of child birth where the mother says "I will never do that again" and yet people keep having babies.
If J Pow hits the market with another 75 point increase on Nov 2, the market is in for more pain. If J Pow maintains his story that the FED is going to continue to do what it has to do in order to get inflation down to 2% without any acknowledgement of potentially positive signs such as the manufacturing slowdown, the next round is going to be worse. Remember, J Pow has already told us that the FED has learned from the past that it is very important to not take their foot off the brake too soon.
A certain percentage of the population is already feeling the strain of higher rates. The pain from every increase going forward is likely to be exponential. In Canada, when variable rate mortgages start hitting their trigger point, all of the home owners and real estate investors who are hanging on by a thread will be in trouble.
When people have to sell their houses, it is not the same as selling stocks because the financial and emotional costs are huge. As a consequence, stocks and every liquid asset gets dumped before the decision to sell a house happens. The pros on Wall St. don't know this. They are just getting positioned to take advantage of the eventual capitulation like they always do. When the moment of capitulation happens, those that have moved to cash can position themselves to double their net worth in a matter of months or certainly in a year or two. Don't believe me! I assume everyone reading this can remember 2020 and 2008/2009.
I don't know if I have made the right decision or not. The price of SU is already up a buck above my selling price so I look like an idiot so far. I take consolation in the fact that I nearly doubled my money on the investment.
To me, the lost opportunity is worth it to be in a position to take advantage of a capitualiton in the market as opposed to being on the wrong side of it.