How We’re Prepared for the Debt Ceiling Deadline, by Brian Nelson, CFA
The debt-ceiling debate of 2011, the resulting 11th-hour agreement of that episode, and the massive stock rally that followed has created a sense of reassurance in the investment community that everything will somehow be alright. Such a stance, in our view, is unfounded. With stock valuations now significantly stretched (see: Keeping Some Dry Powder), there’s no longer underlying valuation support for the broader equity markets to move higher as they did since 2011 — when all of our significant outperformance in the Best Ideas portfolio was generated.
We’ll be watching events closely during the next few days (the deadline is October 17), but one thing is clear — we remain focused on achieving the return goals of our Best Ideas portfolio, and we’re well-positioned to do so. For example, should the market rally from here in the event that the debt-ceiling issue goes to the background for an extended period of time, we’d expect the constituents of our Best Ideas portfolio to continue to lead the outperformance gap higher — as they have done through the rapid stock market run-up thus far in 2013.
However, in the unlikely case that there is a large market disruption from this particular debt-ceiling debate, we expect the return on our put option on the S&P 500 Select SPDR (SPY) to significantly increase and the large cash position in our portfolio to help lead to even greater relative outperformance. Said differently, we’ve structured our portfolio in such a way that we’re hoping for the best but are prepared for the worst.
Though we’d much rather focus on corporate earnings and valuations, we cannot ignore political uncertainty. Yet, in any scenario, we believe the best of times are still ahead for Valuentum. Stay tuned, our friends!
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INSIDE THIS ISSUE
1 How We’re Prepared for the Debt Ceiling Deadline
2 What Baseball Taught Investors About Stock Valuation
3 Ads Are (Finally) Coming to Instagram (tickers: FB, GOOG)
4 Banks Pass Self-Administered Stress Tests (tickers: JPM, BAC, GS, WFC, C)
8 Our Best Ideas Portfolio (see article for tickers)
10 Niaspan Generic Could Boost Teva (ticker: TEVA)
11 Don’t Just Look at the House; Examine the Foundation
15 Ford Once Again Leads the Pack with September Sales (tickers: F, GM, HMC, TM)
18 MAKO Receives a Tremendous Offer from Stryker; Is Intuitive Surgical Next? (tickers: ISRG, MAKO, SYK)
19 Braintree Is an Intriguing Acquisition for eBay (ticker: EBAY)
20 Ideas for Your Radar
22 Featured Reports: DLX, USG, O
25 Our Stock-Selection Methodology