October 11, 2016

Expecting economic growth to show signs of decelerating October 2016

Bank and insurance company shares have had a spirited advance this week based on better-than-expected U.S. economic data and talk of the ECB tapering its QE. That said, over a three- to six-month time frame I remain unequivocally bearish on both stocks and bonds.

Bonds have declined in price, and yields have risen to multi-week highs.

Given my negative market outlook and my view that economic growth will show signs of decelerating in the weeks ahead, it appears unlikely to me that the move higher will carry much further.

Which gets me to Hartford Financial Services Group ( HIG), my "Trade of the Week." Hartford's shares have risen from $42 to $44.30 -- over 4% in a lackluster market -- since I discussed the idea on Monday.

Today I plan to reduce HIG from a large-sized to medium-sized position (on a scale higher), and at the same time I am going to expand my insurance short book of Lincoln National (LNC) and Metlife (MET), which are currently small-sized positions.

I am also watching Financial Select Sector SPDR Fund (XLF) for an entry point on the short side in the days ahead. Goldman Sachs and Morgan Stanley, on further strength, will also be short candidates.

On the ProShares UltraShort S&P500 ETF (SDS) , I live at under $16.40 as another entry point, which would imply one more surge higher in the indices. Same for $217-ish for a short re-enter.

I plan to add to gold on any further weakness as a hedge against central bank lunacy.

Finally, I plan to maintain a large short on iShares Barclays 20+ Yr Treas. Bond ETF (TLT) , reflecting my continued view that bond yields made a generational low in July and will track a slow but steady rise higher in the months ahead.

Again, I am trading opportunistically and will remain flexible, though I have a negative market outlook over the next six months; I do not plan to take on many long-term leases.

Position: Long HIG (large), Short MET, LNC (small).