#66 S2N: Buy the Dip

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Buy the dip became the war cry of the retail trader during the COVID stay-at-home stimulus rally. It has pretty much summed up market bulls since time immemorial. I have been wanting to do this analysis for some time. I may not have used a complex set of rules, I simply took a rolling 1-year window and bought the SP500 whenever there was a -10% drawdown. I then held it for a year. I was shocked with the results, as they are shocking. Yes, they look better from 2021, but they are still underperforming. I tried lots of different combinations, like buying a 20% dip. Holding for 2 years instead of 1. Holding for 6 months instead of 1. The bottom line is that they were all pretty bad. So what I can deduce from this is that buying the dip profitably requires a lot more sophistication or luck than you would think.

S2N Observations

There is not much more I can say about the spectacular results of NVIDIA. I am just going to say that net profit for the quarter, from $2 billion last year to $14.8 billion, is just wow!!!

In letter #50 on April 29, I said to back up the truck and fill up on natural gas when it was trading at $1.92. Barry, I know you were keen; I hope you topped up, as it is up 40% this month.

The Japanese Government Bond (JGB) 10-year has just traded above 1% for the first time since 2011. The curve keeps rising like the land of the rising sun, but it is unlikely to slow down the weakening yen.

I am still anticipating the yen trading past 160 in the near future. It sure feels like Japan’s grand experiment with quantitative easing is starting to experience some side effects. Probably like Ozempic will possibly experience; it just doesn’t feel right that you can become thin by taking a tablet.

My final thought of the day. I am seriously worried about the lack of risk premiums in the corporate debt market. I think there are likely to be an increasing number of corporate bankruptcies, but the market, just like the VIX, see’s on blue sky ahead.

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