Opinion: How I’m hedging my portfolio amid political instability and elevated stock prices

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Opinion: How I’m hedging my portfolio amid political instability and elevated stock prices


Everything is exactly what it seems
She’s not hiding wings beneath her leather jacket
Everything is exactly what it seems

Making my way downtown through the haze
I thought I’d figure out how to change
But you never change

Everyone is exactly who they are
You’re not straying far from who you were in high school

Everywhere is a place I’ve been before
They’ve got the same f’ing stores I always end up lost in
Everywhere is a place I’ve been before
Slow Runner, “Everything Is Exactly What It Seems”

This is one of my favorite songs. I want to use the main part to explain some things about the financial system.

Everything is exactly what it seems. If there’s any kind of “conspiracy,” it’s simply the one that’s right in front of you:

  • It seems as if the Federal Reserve is owned by the giant banks that it’s supposed to regulate, and that the central bank always does what they want it to do.

  • It seems the complicated tax code that allows corporations and the wealthiest individuals to receive trillions of dollars in tax benefits each year is a problem.

  • It seems the government provides a few hundred billion dollars worth of welfare payments, food stamps and health-care subsidies to the millions of Americans who don’t make enough money to cover the cost of their lives.

  • It seems the large banks make a lot of money facilitating the above.

  • It seems farmers and ranchers get tens of billions of dollars each year in welfare too.

  • It seems like every socialist system drains the middle class as it enriches a few at the top and guts small-town industry while making the poorest people dependent on the government for ever-less help even as it gets increasingly more inefficient in the services it provides.

  • It seems that banking, farming, insurance, public schools and many other industries keep getting more expensive despite providing less.

  • It seems we already live in a socialist system that both Republicans and Democrats, including President Trump and former Presidents Obama, Bush(es), Clinton, Reagan and Carter have always been OK with.

  • It seems the whole point of government in the U.S. these days is to create new and more complicated tax rules, subsidies and regulations, along with invasions of our privacy by the government and corporations.

  • It seems like the U.S. government can’t stop bombing people in the Middle East and that children are often the casualties.

  • It seems like the U.S. can’t seem to shut Guantanamo where the whole premise of keeping people there is apparently because the government isn’t beholden to the Constitution while there.

  • It seems we have a lot of enemies out there and that we are a long way from home over there — a vicious cycle of violence and endless war, expense, death and corruption.

  • It seems there was a little bit of fraud in the election, just like there always seems to be. The same Republicans who won their (re)elections but are still fighting the presidential election results want to pretend that there was not as much fraud (very little fraud, that is) in their own districts.

  • It seems the Democrats are making the storming of the Capitol a partisan problem, just as the Republicans and Democrats do with everything else, including the coronavirus pandemic.

I have never been OK with either side’s socialist tendencies.

It seems nobody is willing to reject this busted two-party system but me and a few of my friends. We vote peacefully for non-Republicans and non-Democrats or for write-in candidates. We meet monthly over Zoom to discuss how to make the whole system more transparent. It seems most people in the world just want their families to be safe and to have some opportunity to make a fair buck in a fair exchange for goods or services.

I will never be able to understand how anyone can be excited about anybody who continues this system by running as a politician on one of these two same old corrupt, warmongering, corporatist-favoring Republican and Democrat platforms.

None of this ever changes. This is why I am able to remain objective in my analysis of how how these political realities can affect the economy and markets.

Investors are taking political instability in stride

All of this brings me to something about which I cannot stop worrying. It seems President Trump doesn’t want to leave the White House and that he’s going to be willing to risk more uprisings, insurgence, riots, violence and mobs. Still, the president last week finally conceded the election, saying “a new administration will be inaugurated on Jan. 20.”

There are many people I love and respect who take Trump seriously when he complains that the election was rigged against him (but, again, apparently the elections weren’t rigged for any Republicans who won).

There could be millions of people going to their state capitals or Washington, D.C., to “protest” over the next few days before and during the inauguration of Joe Biden. These protests could turn, again, into mobs and violent confrontations because it seems the mobs cannot be controlled.

It seems investors aren’t worried about this.

It seems that valuations for many stocks remain wildly elevated.

It seems like the markets keep looking past the plethora of increasing risks out there and it seems like that might never end. It also seems like I’m usually the one who’s not worried about geopolitical and partisan concerns when the markets do freak out about them.

What I’m doing now

I am buying some puts to help hedge the longs in the portfolio this week. The puts are dated out to next Jan. 22 or the week thereafter, 2% to 3% out-of-the-money, and I’m mostly focusing on ETFs, such as the iShares Russell 2000 Growth ETF
IWO,
-1.32%
,
the VanEck Vectors Semiconductor ETF
SMH,
-1.95%
,
the SPDR S&P 500 ETF
SPY,
-0.82%

and the Invesco QQQ Trust
QQQ,
-0.56%
.

I am hoping that these puts expire worthless and that the next week is no big deal. But it seems like hedging a little bit here after reading all my analysis above might be a good idea.



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