Recession

It appears confirmed that the US is indeed entering a recession, though definitions of that term are somewhat subjective. Startlingly weak consumer spending will undoubtedly cause great pain for all companies in the consumer value chain, most notably those that are the most levered and sit closest to the consumer (retail, credit cards etc). Most likely, consumer advertising, and other discretionary business expenses will also suffer sharp, if delayed, reductions as spending a large amount of capital on gaining the attention of consumers who are not willing to spend will no longer be justifiable on an ROI basis. These points may be obvious to most investors, however, there is still a substantial short opportunity here, as the plummeting broad equities markets will impact the weakest companies most severely.

Short SPX, Long Gold

The great unwind

Global markets continue lower today, with US markets closed. JPY is up substantially, with carry trades being unwound rapidly and the Bank of Japan mulling a rate hike. This bodes poorly for Japan's trade-based economy. It also has serious repercussions for net debtor currencies, or any economy that has positively benefited from the carry trade in the past. I would look to go long JPY and CHF, however as this trade has already moved fairly substantially. Start with a small position then attempt to buy dips (if any).
SPX futures are down over 3% overseas. This, unfortunately, is still the beginning of the decline. The steepness and severity over the next few weeks will tell us a great deal about how long and deep the full recession will be. Full position short SPX futures.
Gold is being pulled down by equities, however, again, with the activity in equities and FX it "should" be higher rather than lower. Unfortunately, Gold ETF's are being redeemed. I am holding a small position in the metal, and am looking to add to it over time, especially once the correlation between Gold and equities disintegrates.

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Ugly

Equities finished the day substantially lower today, following poor readings from the Philadelphia Manufacturing Index. This is substantial because it appears that, with the close nearly 40 points below yesterday's close, the SPX has broken any support levels that previously held it in place. The equities sell-off also prompted traders to reduce positions in precious metals, when, in theory, this news should have been bullish for these commodities. This appears to be the beginning of a multi-year sell off, and the data offers little reason to believe that this correction will be less severe than that which began eight years ago. While a 30% decline in the SPX may be appear unlikely to many long investors, the chart shows more exaggerated moves have occurred in the last decade, during a crisis that did not have as strong roots as the housing/wealth effect/consumption decline we are currently in the beginning of. I do not believe it is too late to go short, and today proves that this bear market will have longevity.
Short SPX, Long Gold
 
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