Making Hay Monday - May 19th, 2025
On when/if to sell down
One of this newsletter’s most repeated themes has been what we’ve often called America’s 4F condition: its Federal Fiscal Funding Fiasco. The reality is the U.S. continues to run deficits that should only be seen during hot wars and cold economies (bordering on depressions, in the latter case).
Moody’s has belatedly woken up to the gravity of the situation by downgrading America’s sovereign debt to AA1. This is now the third, and last, major credit rating agency that has removed the USA’s once sacrosanct AAA rating. Considering that U.S. Treasury debt is the backbone of the global financial system, this should be exceedingly concerning.
The soothing argument is that S&P lowered America’s credit rating to AA+ in 2011 and, since then, its world famous index, the S&P 500, has soared by 450%. However, over the past 14 years, the U.S. government’s debt-to-GDP has vaulted from 40% to 100%, based on publicly held federal IOUs, per the above chart on the right. More worrisome is that total debt outstanding is now around 130%. This includes, for example, government debt held by the Social Security Trust Fund, and it is even higher than at the end of WWII.
To make matters worse, not that they need to be, Moody’s is predicting the USA’s debt-to-GDP will spike another 35% by 2035. Similarly, annual deficits will rise from an already inexcusable 7% of GDP to 9% by then. It’s hard to see how such fiscal recklessness will not lead to a funding crisis for America long before a decade passes.
Markets have been rejoicing that tariffs will not be as punitive as feared early last month. However, they are likely to remain near the highest of the last 100 years.
While most countries will be subject to “only” a 10% levy, much higher tariffs on China, from whom the U.S. continues to import nearly $500 billion of goods annually, second only to Mexico, elevates the average. Yale University’s Budget Lab estimates this will cost the average American household an extra $2800/year.
“To everything there is a season, and a time to every purpose under heaven: A time to be born, and a time to die; a time to plant, and a time to pluck up that which is planted.”
The Book of Ecclesiastes, covered by The Byrds approximately 2500 years later.
Harvest Time
Before I delve into this week’s potential Pick to Click (emphasis on potential) I would like to suggest a bit of profit-plucking on ideas previously highlighted in this newsletter. In my view, far too much attention is devoted to buy stories and not nearly enough to when to harvest gains. Most of the successful investors I know and/or track closely admit that selling is the hardest part.
One quick, but related, side road on that score is a stock which was the recipient of intense media attention last week, though, unfortunately, of the unwanted kind. United Healthcare (UNH) has been one of the most spectacular large-cap winners of the last 15 years. It had rocketed from $34 in 2010 to $630 at its peak in late 2024. In fact, as recently as April 11th, it was trading at $600.
Since then, it has seen one of the most rapid and precipitous declines a mega-cap stock has ever endured. It now trades at $315, after hitting $249 last week, representing a loss of almost $300 billion. As CNBC’s Brian Sullivan observed last Thursday, UNH has lost the equivalent of a Bank of America. He went on to say that he doesn’t believe another Dow component has experienced that type of market-value evisceration in just a month. My belief is that he is correct.
UNH has also been an interesting case study in both breakouts and breakdowns. On the former, it had its upside range expansion last July when it broke above $550 on its way to $630 four months later. That was certainly a nice return in a short time, but to capitalize on it one would have needed to sell into the rally which, admittedly, wasn’t a corker. More critically, on the point of the importance of selling, in this case on the way down, it took out multi-year support at $440 late last month.
Five-year Price Chart of United Healthcare
Rapidly reacting to that downside range expansion would have saved some serious coin. This is a pattern that has repeated continually over the years. It’s particularly critical, in my view, with financial stocks, which can immolate almost overnight. (See the three large bank failures in early 2023, per the below.)
At this point, UNH may be a great buy, but there is a potential criminal investigation hanging over its head. Usually, with these types of situations, it’s best to wait until there is some extensive base-building and strong evidence of a broken downtrend. Fleeting snap-back rallies are certainly possible, even likely, but those are tricky to play. (Actually, since I first composed these words, one has indeed occurred.)
Fortunately, this newsletter avoided highlighting UNH, despite its breakout last summer. Chalk that up to dumb luck. However, relevant to the theme of this Making Hay Monday (MHM), there were a few stocks we brought to your attention that now strike me as definitely in the sell-down, maybe even sell-out, zone.