Options Expiry Chicanery Underway

This is the last quadruple witching expiration of the year, which is probably going to be wrought with all sorts of chicanery.

In a year when the most reliable trend was down, I suspect the market will go out a loser in 2015, limping through the “Santa Claus rally” as if it just got stuck in the chimney.

On this very joyous options expiration day, expect volatility, pain, and stupidity en masse.

In other words, you’d be much better served reading my archives or eating a sandwich, or both, than trying to trade this muck today.

For the record, I am still 95% long–eagerly awaiting a long overdue squeeze.

What an absurd conglomerate of people we are, making a holiday out of poor fashion sense.

Stocks are set to dive lower today, as oil defies every notion of mercy and sports at $34 handle.

Watch very closely as highly leveraged oil companies start to buckle under. It’s amazing to see names like UPL at $2, going lower. This is the 9th inning for 80% of these speculative oil and gas names. Some of them were building empires, were going to be great American comrporations that intended to employ thousands of people for generations to come. But they couldn’t take the heat in the kitchen when it got hot. They couldn’t hold their butter, manage through the hard times; now they’re going away.

I’d like to think we’re going to bounce soon. It’s hard to make reasonable predictions at the end of the year, a terrible year, where investors are fleeing for the exits, takimg tax losses, etc.

Prepare yourselves for the worst. Go sport a really ugly sweater, get drunk, then fall down a flight of jagged stairs.

Is there a more dysfunctional society than Japan, with their perverted distortions in how they view robots, anime, and their incredibly low marriage and birth rates? Where are the virile men? Oh, that’s right, they’re all playing with their fucking robots.

The BoJ said it would extend the average maturity of its government bond holdings to 7 – 12 years, from 7-10 years, “with a view to encouraging a decline in interest rates across the entire yield curve.”

Also, and I found this to be interesting, the radioactive nation which once housed life in Fukushima wants to partake in a little equity ETF purchasing. Might I suggest opening an account at Motif and creating your own little basket of stocks, you silly little bastards?

Under this new program, the Bank will purchase ETFs composed of stocks issues by firms that are proactively making investment in physical and human capital. The new program will start with purchases of ETFS which track the JPX-Nikkei Index 400.

What does that mean, “human capital?” Anyone?

This sort of gimmick might’ve moved the needle a few month’s ago. But no one gives a shit anymore. It’s late in the year. American fat, rich, men are drunk off eggnog, totally uninterested in more useless Japanese QE. Plus anyway, we have yield curves and high yield junk bonds to panic over.

Japan is down nearly 2%; Dow futures are off by 61.

That’s all.

We’re all well aware of the systemic problems china is facing today. I think it’s important to note the lack of reform or stimulus to combat these deflationary pressures. The number one takeaway from this story playing out is that the great commodity run in copper, steel, oil and in the shipping industry is over, permanently. We may never see big economic growth emanating from those industries again…in our lifetimes.

The report was based on surveys of more than 2,100 firms across China and interviews with bankers, managers and executives. CBB began the series in mid-2012, when its inaugural survey indicated a pick-up in growth from early that year, a forecast later borne out.

The Beige Book’s profit reading is “particularly disturbing,” with the share of firms reporting earnings gains slipping to the lowest level recorded, CBB President Leland Miller wrote in the release. While retail and real estate held up reasonably well, manufacturing and services performed poorly, with revenues, employment, capital expenditure and profits weakening.

The survey shows “pervasive weakness,” Miller wrote in the report. “The popular rush to find a successful manufacturing-to-services transition will have to be put on hold for a bit. Only the part about struggling manufacturing held true.”

“More concerning than overall growth weakness was degradation of two components of the economy that were previously overlooked as sources of strength: the labor market and the impact of inflation,” Miller wrote. Given growth in input prices and sales prices slipped to record-lows while firm performance metrics fell, “it looked like firms were encountering genuinely harmful deflation,” he wrote.

As an investor, it’s important that we accept these new realities and cease trying to find bottoms in asset classes that will never come back, myself included. In 2016, I am going to stay fixed on allocating assets based solely on a top down approach, which will instill certain disciplines that will help me to avoid value traps and “great dip buying opportunities.”

We all need scapegoats and things to keep us up late at night, cowering under the sheets in this chimerical world we live in. Don’t look now, but recession is right around the corner and very soon we will begin to see the fissures in this fallacious global economic hazard.

Yesterday’s Fed hike is going to expedite crisis in the high yield space. We’re aware of that. But what many people aren’t watching just yet is the yield curve. When short term rates creep higher, while long term rates edge lower, the economy is in trouble. Have a look at government bond yields and durations to see what’s been happening.

At a very minimum, the profit margins at banks are going to shrink. They make money by borrowing short and lending long, via the spread. If present conditions persist, every talking head on teevee and print will start to use buzz words such as “inverted yield curve” and how it portends to recession. This will serve as a self fulfilling prophecy, scaring the shit out of CIOs, who will enact conservative measures to shore up balance sheets and viola: RECESSION WILL HIT.

The Fed wants to hike rates 4-5 times next year. If they do not get rates to 1.5%, it will be because the market said no.

Best short ideas into an inverted yield curve are banks, both regional and Snl, and of course commodities, since the dollar will likely keep driving higher as people plow into long duration treasuries.

Yesterday was the part of the horror story when the people rejoiced over defeating the evil killer. The sun was shining and an eery calm presided over their quaint little existence, as they thanked each other and discussed plans for the future.

Then, out of nowhere, the maniacal killer returned to devour them whole, plunge them back into the hell they so desperately seeked to escape.

One day removed from the dumbest monetary decision since 1967, markets are careening lower, led by commodity stocks. The dollar is up 1% v the euro and the mood is decidedly glum.

Santa Claus isn’t coming this year. Prepare to have your faces peeled off and fresh lemon juice tossed into the open wounds.

Today’s death in a box action is indicative of 2015. If you think you’re having a rough go at it now, wait until you have to contend with the Fed hiking rates every quarter.

All of the manipulation and fraud has left a stench that cannot be washed out. Stocks cannot trade higher for more than a few days. Breadth is always narrow and the weak and vulnerable are readily picked off.

I ran this stat out on Twitter the other day. No one wanted to believe it; but it’s true. The median return for stocks with market caps under $1 billion is -49%.

You cannot diversify out systematic risk; but you can hedge it, which is why I am emphatic when I say “get short for 2016.”

SCTY was up 34% yesterday, alongside a slew of solar stocks, after congress hooked the industry up with another 5 years of tax breaks. This is especially suprising, given the current cheapness of crude and natty. I suppose they’re all just doing their duty, trying to help save the planet from melting icebergs.

In a surprise move, U.S. lawmakers agreed to extend tax credits for solar and wind for another five years. This will give an unprecedented boost to the industry and change the course of deployment in the U.S.

The extension will add an extra 20 gigawatts of solar power—more than every panel ever installed in the U.S. prior to 2015, according to Bloomberg New Energy Finance (BNEF). The U.S. was already one of the world’s biggest clean-energy investors. This deal is like adding another America of solar power into the mix.

“This is massive,” said Ethan Zindler, head of U.S. policy analysis at BNEF. In the short term, the deal will speed up the shift from fossil fuels more than the global climate deal struck this month in Paris, and more than Barack Obama’s Clean Power Plan that regulates coal plants, Zindler said.

This is exactly the sort of bridge the industry needed. The costs of installing wind and solar power have dropped precipitously—by more than 90 percent since the original tax credits took effect—but in most places coal and natural gas are still cheaper than unsubsidized renewables. By the time the new tax credit expires, solar and wind will be the cheapest forms of new electricity in many states across the U.S.

The tax credits, valued at about $25 billion over five years, will drive $38 billion of investment in solar and $35 billion in wind through 2021, according to BNEF. The scale of the new projects will help push costs down further and will stimulate new investment that lasts beyond the extension of the credits.

Few people in the industry expected a five-year extension. Stocks soared. SolarCity Corp., the biggest rooftop installer, surged 34 percent yesterday. SunEdison Inc., the largest renewable-energy developer, climbed 25 percent, and panelmaker SunPower Corp. increased 14 percent.

The 30 percent solar tax credit was set to expire next year and will now extend through 2019 before tapering to 10 percent in 2022. The wind credit had expired at the end of 2014, and the extension will be retroactively applied from the start of 2015 through 2019, declining in value each year.

I’m not one to chase crazy rallies; but I bet the solar stocks continue higher on this news. Best way to play it is through TAN, or by owning a basket of them.

Here are some of the top solar names in Exodus.

How a little jerk, who feasted off the lives of people with aids, came into prominence in 2015, is beyond me. This whole saga seemed like a cartoon, with the whole livestream videos of him floating around his office in his hoverboard to playing video games like an overgrown juvenile idiot, live for the world to see.

This, coming after he decided to buy a soon to be bankrupt biotech company, KBIO, at $1.50, pushing it to the sbsurd heights of $40 in a short squeeze bonanza, is almost too much for me to bear. The story I wrote last night about him claiming to be a rapper and offering warnings shots to the Wu Tang Clan, highlighting his hardcore Albanian background as a cause for his enemies to be concerned, was the icing on the cake.

Am I supposed to dedicate inane amounts of valuable site space talking about this clown, discussing his mental fraility and bizaare actions?

Judging by the traffic stats, the answer is a resounding yes. Truth is, people like Martin, sociopaths, blow themselves to smithereens every day. He just made a public spectacle of it.

Is he done?

I seriously doubt we’ve heard the last of the Albanian rapper from Sheepshead Bay. But, I think the storyline has arc’d and it’s all downhill from here, as far as comedic value is concerned.

The story of Martin Shkreli is filled with metaphors, parables and lots of cool punch lines, rather apropos for a year in which the market did nothing but disappoint investors. I am not suprised to see this story play out in a similar vein.

Oh well, that didn’t last very long. The less than a month old CEO of KBIO, asshole in Chief, Martin Shkreli, was arrested this morning for being an asshole–and also committing securities fraud.

Here’s the scoop.

Complex financial maneuvers were used to conceal the payments, Retrophin said. For example, the company accused its former CEO of fraudulently reclassifying a $900,000 equity investment that MSMB made in Retrophin as a loan. He then allegedly had Retrophin pay off that loan to settle another unrelated legal dispute.

The Securities and Exchange Commission, which according to court documents opened an investigation into Shkreli in 2012, is expected to file a parallel civil complaint against him, according to people familiar with the matter.

Shkreli spoke cavalierly of the company’s lawsuit, saying, “The $65 million Retrophin wants from me would not dent me. I feel great. I’m licking my chops over the suits I’m going to file against them.”

Earlier, he had denied wrongdoing in a post on InvestorsHub after Retrophin disclosed it had received a subpoena from federal prosecutors and the preliminary findings from its own investigation of Shkreli. He called the company’s allegations “completely false, untrue at best and defamatory at worst.”

“Every transaction I’ve ever made at Retrophin was done with outside counsel’s blessing,” he said on the investment blog in February, without identifying the lawyers.

Shkreli started his career interning for “Mad Money” host Jim Cramer while still a teenager. After recommending successful trades, Shkreli eventually set up his own hedge fund, quickly developing a reputation for trashing biotechnology stocks in online chatrooms and shorting them, to enormous profit.

Widely admired for his intellect and sharp eye, he pored over medical journals and self-trained in biology. He set up Retrophin to develop drugs and acquire older pharmaceuticals that could be sold for higher profits.

Turing, which is less than a year old and has raised $90 million in financing, has followed a similar strategy with the purchase of drug patents, including Daraprim.

Shkreli recently bought a majority stake in KaloBios Pharmaceuticals Inc. after Turing received a warning from the New York attorney general that the distribution network for Daraprim may violate antitrust laws. State officials made their concerns known to Turing and Shkreli in an Oct. 12 letter obtained by Bloomberg.

KaloBios recently acquired the license for benznidazole, a standard treatment for Chagas, a deadly parasitic infection most common in South and Central America. The firm announced plans to increase the cost from a couple hundred dollars for two months to a pricing structure like that for hepatitis-C drugs, which can run to nearly $100,000 for 12 weeks.

“Some of these companies seem to act more like hedge funds than traditional pharmaceutical companies”
With the onslaught of federal charges and looming regulatory actions, Shkreli could be banned from running a public company, which could put the future of KaloBios into question. Shares of the firm fell 50 percent in pre-market trading. It’s less clear what the impact could be on Turing, which is privately held.

The charges also show that a small group of health care firms—ones that acquire the rights to drugs and significantly increase their prices—is drawing the scrutiny of regulators and prosecutors, with a possible chilling effect on aggressive drug-pricing strategies.

Legislators are already paying attention. A hearing of the Senate Special Committee on Aging on Dec. 9 scrutinized such tactics.

Before Shkreli started Turing, Retrophin raised the price of Thiola, used to treat a rare condition causing debilitating recurrences of kidney stones, from $1.50 a pill to $30.

“Some of these companies seem to act more like hedge funds than traditional pharmaceutical companies,” said Senator Susan Collins, a Maine Republican who ran the recent hearing.

George Scangos, CEO of biotechnology giant Biogen Inc., went further, saying in an interview, “Turing is to a research-based company like a loan shark is to a legitimate bank.”

Who knows what the fuck is going on here? Fact is Marty made an absurd amount of enemies over the past month, including the Wu Tang Clan.

Son, Wu Tang Clan ain’t nothing to fuck with. Too funny.