The 15 Trillion Dollar Gravy Train Ends Today

It was a good run, with lots of drama along the way. From 2009 until now, the market has increased by $15 trillion in market capitalization, largely thanks to the actions of the Federal Reserve.

I am not going to glorify the actions of The Bearded Clam, aka Dr. Benjamin Bernanke, today. Instead, I will attempt to document and editorialize what I believe will end up being a massive mistake by the Yellen Fed.

Everything changes after today. The Fed backstop that saved our bacon since 2009 is gone.

RIP-QE

Keep your chin up Billy Albert. You’ve made billions of dollars over the past decade, own a $100 million apartment in NYC just for shits and giggles, and you do it for the sex.

Don’t let 2015 get you down, a year when you doubled and tripled down in a biotech stock gone mad,  played with dynamite sticks in a pyramid scheme short sale that Carl Icahn keeps afloat for the sake of his entertainment, and having an all in all bad time of it playing Gordon Gekko this year.

Calm yourself and harness the superiority of your genetical make up, outstrip your pathetic peers and make 2016 the best year ever.

Ackman laments in a letter to shareholders:

“If the year finishes with our portfolio holdings at or around current values, 2015 will be the worst performance year in Pershing Square’s history, even worse than 2008 during the financial crisis.

Ackman emphasized his firm’s low redemption levels.
“Our net redemptions were nominal at $39 million or 0.2 percent of capital for the third quarter, and $13 million or 0.1 percent in the fourth quarter,” he said in the letter.
The firm’s Pershing Square Holdings fund dropped 19.7 percent during the first 11 months of the year, marking a sharp contrast with last year’s 40 percent gain when Ackman ranked as one of the $3 trillion hedge fund industry’s biggest stars.
As a so-called activist investor who tends to make only a handful of concentrated bets and then pushes management to perform better, the 49-year old Ackman has seen much of last year’s profits eaten away as his bets on drug company Valeant Pharmaceuticals and Platform Specialty Products tumbled in the third quarter.
Still, Ackman, who oversees money for state pension funds, endowments and wealthy investors, said the portfolio’s intrinsic value increased even as its mark-to-market value, which reflects the daily stock price, has declined “substantially.”
Ackman said again in the letter that he is sticking with Valeant – which surged 16.41 percent on Tuesday – saying, “We do not believe that Valeant’s long-term earnings prospects have materially changed.”
As of early November, Valeant’s stock price had plunged 70 percent from its peak in August. But the stock has since recovered some ground as Ackman and other large investors bought more shares. In the last weeks Ackman used over-the-counter options transactions. He said in the letter that if the stock price rises to $165 or more by January 2017, “We will make more than 10 times our net investment over this period.”

 

Oh shit. Ack-attack is gonna turn his VRX shit hole into a 10 bagger. I’m long, wearing 3-d glasses, and got my popcorn ready for rapid consumption.

Here is Billy Albert’s shareholer letter in its entirety.

Lots of jargon going around with regards to high yield. The play was to scheme your way into an oil well, through these derivative based ETFs that were tied to the debt of oil and gas properties. You got paid 8% for your troubles, as Bernie Maddoff managed your money with excellent efficiency.

Well, all of that has come to an abrupt end. The oil boom is over. Everyone is getting George Bush’d now.

Note: some of these aren’t exactly “high yield” per se, but nefarious nevertheless. I figured the more data the merrier.

Here are the worst performing high yield ETFs, ytd, courtesy of Exodus.

Kayne Anderson MLP (KYN) -61.8%
Stonegate Mortgage (SGM) -61%
Allianz GI Convertible (NCZ) -39%
LMP Capital and Income (SCD) -26%
Calamos Convertible (CHY) -21%
PIMCO High Yield (PHK) -19%
Credit Suisse High Yield (DHY) -14%

Now let’s explore which closed ends have underperformed over the past month, during this oil debacle.

Kayne Anderson (KYN) -33%
Macquarie Global Infrastructure (MGU) -9.5%
Franklin Universal Trust (FT) -7.6%
Calamos Convertible -7.5%
Dreyfus High Yield (DHF) -7.2%
Western Asset Global (EHI) -7%

The past week…

KYN -11%
PHK -6.6%
PTY -5.8%
NCT -5.7%
DHY -5%

#fuckery

Long both PAH and VRX, waiting eagerly by the pagan X-mas tree for a jewish Santa Ackman to bestow MOAR gifts upon my person.

It was a solid day, all things considered. I was not impressed by the breadth of this rally, coming in at 74%. The big show down is tomorrow, when the fucking Federal Reserve convenes to destroy the U.S. economy by hiking rates into an earnings slump.

Nevertheless, we can still rally. In 2008, the market rallied for all sorts of stupid shit, then melted away into hell when people figured it all out. Take the trade. Enjoy the egg’d nog. Don’t trust anyone. There are rapists out there.

Am I supposed to be grateful for this rally bestowed upon me? Fuck this rally. By the time I head to the bathroom and back, all of my stocks could be diving into the concrete again.

As I write this, the grifters in the market are taking it down again. After all, Yellen might say something dangerous tomorrow. This wonderful holiday joy that we’re experiencing now might turn into a nightmare and the market might go zero bid on us.

Listen, save yourselves the trouble. Call it a year and go drink yourself unconscious with egg nog. Hedge your clogged arteries with a good life insurance policy and call it a day.

PAH, SHAK, CNC, JAZZ and VRX: those are my largest positions. Will they go up? I hope so. Either way, I am going to begin a short basket for 2016 to profit from the calamity ahead.

Oh, you don’t think calamity awaits you?

Wait and see.

Seasons greetings.

Stocks are rallying nicely today, even oil. Just about eveything I own is up, except for YELP, naturally.

For the one millionth time over the past 4 years, Facebook is “testing” a site that will allow its users to review services.

The new Facebook site may threaten Yelp, Angie’s List Inc. and other search and customer-review websites because of the weight of friends’ opinions in making decisions about what products and local businesses people use. Facebook has long been testing related features, such as telling you which of your friends has checked in at a place you’re visiting, and what they said about it at the time.

“We’re in the early stages of testing a way for people to easily find more Pages for the services they’re interested in,” Mike Manning, a spokesman for Menlo Park, California-based Facebook, wrote in an e-mail.

MY position is so small, the loss is virtually meaningless to me. I am more interested in YELP from an emotional standpoint, as an avid user of the service. I find the company to be filled with clowns and its CEO to be a drifter incompetent. Nevertheless, the comopany is wrapping up 2015 with a bang, right in the faces of longs.

As for the rally at hand. Rallies happen, even during the worst tapes. I’ll reserve my dire outlook for when the selling begins again.

I am 97% long, zero shorts, with a dash of cash. I intend to press these gains as far as I can, then mix it up in 2016.

One more thing: Jeff Macke will be joining us in Exodus during the month of January. He will be in the notes and on the Exodus blog, mixing it up, offering advice. If you have any requests, as per what you want him to cover, let us know.

Additionally, he shit on Martin Shkreli’s Turing Pharmaceuticals. It’s ridiculous to compare Turing to the juggernaught that is Valeant.

It’d be like comparing your bullshit blog to the imperial domain of iBankCoin.

Watch.

J. “Fucking” Michael Pearson has VRX running hot this morning, up 13%.

This guy still wants to pay out dividends. On one hand, he’s saying the high cost producers are ‘hanging on by their fingernails’, or the skin on their cocks. On the other, he believes prices are laughably cheap down here, clowning those who believe that current trends will prevail and iron ore will hit $30.

“Most of that tonnage falls into the high-cost category. So at the moment, those people are hanging on by their fingernails,” he added. “But sooner or later the adjustment will take place.”

The spot iron ore price [.IO62-CNI=SI] fell to its lowest since at least 2008 at $37 (£24.4) a tonne last week amid shrinking demand for the steel-making ingredient in major consumer China.

Rio as the world’s lowest cost producer is still profitable even as prices have slumped.

When asked if prices could slide as low as $30 a tonne, Walsh said it would not be able to remain there long due to the large number of mines that would shut down.

“It’s not sustainable. It is fantasy land at that level.”

Do you know what’s ‘fantasy land’, mate? The fact that you still pay a dividend or think the China boom is simply taking a breather. Also, this is funny too. Your fucking stock chart.

Valeant pulled a rabbit out from its own ass, striking a deal with WAG for their overpriced meds. This is fantastic news for long, just in time for KRAMPUS. If you’re short the stock and ponder over your fate, just know, you are going to die today.

Valeant will cut prices by 10 percent for branded dermatology and ophthalmology products distributed by Walgreens retail pharmacies and plans to extend the model to independent retail pharmacies, the companies said Tuesday in a statement. The deal, which spans 20 years and more than 8,000 U.S. Walgreens pharmacies, starts in the first quarter and initially will cover medicines including the toenail fungus drug Jublia, acne products Solodyn and Retin-A Micro and eye drop Alrex. It will also cover Valeant’s over-the-counter products.

The drugmaker, which has come under fire for raising the prices of old medicines, also said it agreed with Walgreens to distribute more than 30 branded products at “generic prices,” reducing prices from 5 to 95 percent. Those reductions, specifically for drugs that have generic competition, are expected to take effect in the second half of next year, while the 10 percent cuts will be implemented over the next six to nine months, Valeant and Walgreens said.

“We have listened to what the marketplace is saying and we’ve taken positive steps to respond,” Valeant Chief Executive J. Michael Pearson said in the statement. “Our goal is to create a system that allows prescription medications to be dispensed and insurance claims adjudicated in an efficient manner while allowing physicians to focus their efforts on what matters most: patient care.”

Fucking toenail fungus drugs? Really? Is that what I’m invested in here? Nevertheless, the stock should scream higher today, as William Albert Ackman straps in and straps onto the short sellers who held onto this piece of shit stock one day too long.

I run an active screen thaat alerts me when a basic resource equity passes the 5x debt/eq threshold. It’s sort of an arbitrary number, but I like it. I view 5x debt/eq as a level where the debt load begins to get serious, the other side of the mountain if you will. Once it gets to 10x, rest assured, reorg is right around the corner.

As of tonight, the distressed debt that I follow in Exodus is at a new high of $291 billion. Everyone is yapping about Third Avenue and now questioning the high yield ETF space.

What do you think they’re buying?

They’re buying the debt, more or less, of the companies that I am alerting you to, CHK being the poster child.

In 2007, the sub prime debt was supposed to be a very small piece of the overall picture, something to dismiss and not worry over. Then, all of the investment grade debt turned to shit and we had ourselves an apocalypse not seen since 1929.

So, we’re all concerned over this small number of $291 billion. But it’s growing daily, with each downtick in crude and equity prices. Behind that 291 is another $1.8 trillion.

How much of that $1.8 trillion in oil and gas debt becomes high yield depends upon the underlying commodity: crude oil. Just like the value of homes dictated the condition of the debt that ravaged the world in 2008, the price of crude is going to do the same to us now.

ZIRP provided the world with excess liquidity. Over the past 10 years, oil and gas projects were financed without question and now the chickens have come home to roost.

This is 2007. The oil and gas burden is the housing debacle. We will enter a period of flux, during 2016, as the price of crude defies reason–down to $30, then $25, then $20, then $15.

Pray tell me, how much of that $1.8t will be considered “high yield” when crude is sucking dicks at $15?

That’s what we’re up against.

Good evening (extra Count Dracula).