This fund manager has long warned of money leaving the financial system as interest rates rise. Here’s his advice for investors right now.


Stock futures are higher on Tuesday, perhaps on fervent hopes we’ll get some slowing in inflationary pressures.

A hot number definitely won’t be welcome as investors watch for further fallout from SVB and Signature Bank collapses and ensuing stress on the financial sector. And some are indeed warning of that.

JPMorgan’s Marko Kolanovic, told clients on Monday that many carry trades — basically borrowing at a lower interest rate and investing in one that offers higher return — that have developed during cheap financing “can’t all be bailed out.”

Onto our call of the day from Stock Traders Daily and portfolio manager at Equity Logic, Thomas H. Kee Jr., who in January warned about fallout for markets from liquidity leaving the financial system thanks to Fed tightening that could upset markets in 2023.

Kee has talked about similarities between current markets and 2019. A crisis emerged in the latter part of that year as big banks questioned liquidity levels amid a Fed drain, which led to a surge in overnight lending rates and ultimately required massive injections by the Fed to steady markets at the time.

In a fresh interview, Kee says his concerns are now materializing about a repeat of liquidity-linked stress, though he fears risks are much higher now. “This time, the FOMC does not have stimulus as a tool, at least not like it did back in 2019,” he said.

And he also doesn’t see the current crisis as finished playing out. “This is a sign, a precursor to a much more serious decline…and investors need to have something that controls risk. They should not wait until it is obvious to get it done. That would be way too late,” said Kee.

“Once an investor prepares his portfolio so that it can handle anything that happens, he won’t ever need to change,” he adds.

His big message is that investors must “simplify” their portfolios. The first step, he said, is to ascertain which market their portfolio tracks, whether it be the Nasdaq
the S&P 500
the Dow industrials
or the Russell 2000

“Then use the ETFs [exchange-traded funds] for those markets to efficiently manage risk,” such as the SPDR S&P 500 ETF Trust
Invesco QQQ Trust Series
ProShares Ultra S&P 500
ProShares UltraShort S&P 500
ProShares UltraShort QQQ
and ProShares Ultra QQQ

Not without risk of course, Ultra ProShares are leveraged ETFs that can magnify the performance of the stock market three times.

Kee points to his CORE investment approach, which he says has been working for clients during these volatile times(see more here). “The portfolio is a simple as it can get. SPY is the most liquid equity instrument in the world, and that makes it even better. CORE tracks the S&P 500 when it is exposed and it does not have market risk when it is neutralized,” he said.

His CORE strategy was in cash all last week, said Kee, protecting from the rout seen for stocks. The strategy has gained over 20% year to date, he said. The S&P 500 has dropped 4% over the last three months.

Read: Banking industry jitters could mean more pain for stocks by dragging out Fed’s battle with inflation

Opinion: SVB and Signature Bank failed after 2 looming risks went against them — and many other banks are facing the same fate.

The markets

Stock futures


are higher ahead of CPI data, as the 2-year Treasury yield
rises following the biggest one-day plunge since 1987. The dollar
is up 0.3% after three days of selling, but oil
continues to drop on SVB-fueled recession worries. Asia had an ugly session with financials getting hit hard in Japan — Mitsubishi UFJ Financial

fell more than 7% as government bond yields
slumped. Bitcoin
is up another 0.5% to $24,248.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

CPI for February is due at 8:30 a.m. and economists are forecasting a 0.4% rise in core prices, the same as January, and a slowdown in the headline rate to 0.4% from 0.5%. On an annual basis, economists expect prices to slow to 6% from 6.4%.

Moody’s Investors Service has put six regional U.S. banks under review for downgrades — First Republic
Intrust Financial Corp. , UMB Corp.
Zions Bancorp
Western Alliance
and Comerica

Read: Regional banks are seeing flight of deposits to too-big-to-fail megabanks

GitLab shares
are down 30% after the code-hosting platform’s revenue forecast fell short of expectations.

United Airlines shares
are off 7% after guiding for a quarterly loss as it saw weaker Jan.-Feb. travel demand and higher fuel prices.

Momentive Global stock
is up 19% on news the SurveyMonkey maker is being acquired by private-equity firm Symphony Technology Group LLC for $1.5 billion.

and DoorDash
have emerged victorious in their California battle to keep treating drivers as independent contractors.

Best of the web

‘The spirit of Dodd-Frank is dead.’ Regulators swore off bailouts, until they didn’t.

Silicon Valley Bank: Here’s what happened to cause it to collapse

A U.K. biotech is using bacteria to dye fabrics and cutting fashion waste.

The chart


The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:


Security name


First Republic Bank

Bed Bath & Beyond

AMC Entertainment Holdings

SVB Financial Group


Western Alliance Bancorp


AMC Entertainment Holdings preferred shares

Troika Media

Random reads

Former Treasury Secretary Larry Summers gets dragged on the internet after opining on SVB’s collapse.

Texas woman wakes from surgery with three different foreign accents — a rare syndrome.

Bali is banning misbehaving tourists on motorbikes.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Want more for the day ahead? Sign up for The Barron’s Daily, a morning briefing for investors, including exclusive commentary from Barron’s and MarketWatch




Related articles

ChatGPT app downloads are slowing down, BofA finds

Sam Altman, CEO of OpenAIWin Mcnamee | Getty...

Missing Texas Teen Found Alive!

1A miracle occurred two days ago. A missing...

GM second-quarter sales increase 18.8% as supply chain stabilizes

2024 Chevrolet Silverado HD ZR2GMDETROIT – General Motors'...

How A.I. took center stage in the Hollywood writers’ strike

After failing to reach a contract resolution with...


Please enter your comment!
Please enter your name here