Trump’s Fake News on China Trade Deal Causes Algos to Go Retarded

Fucking Nasdaq jumped a quick 30 handles after Bloomberg reported the FUCKING LIE that Trump was close to a deal with China.

It’s worth noting, Zerohedge was first to tweet this news.

Now the unwind comes. People got in based on a lie and now have to sell. The selling will beget more selling, etc. These false stories make it WORSE for stocks, not better. Trump is desperately trying to buoy markets. I’d advise him to keep quiet, broker a deal, and then talk shit.

What can go wrong, fuckers?

This is the thesis.

The low vol environment had ended. The era of the Bear has begun. With that in mind, I believe we’ll see heightened volatility on a permanent basis, just like post 2007.

See the lull pre-financial crisis?

Now look at current lull. Same shit.

Yeah, that’s going to end and bring forth a new era in extreme panic. Also, I sold TNA and FAS for 4.5% gains. Also, I sold PYX for a single day 7.3% loss. The TNA and FAS positions were doubled weighted, 10% holdings, so that was a nice gain, especially for the holding period.

My cash is now 65% and I just bought some fucking TVIX, with an initial purchase at double weighting, at 10%.

The fear, naturally, is for a total and complete give back of yesterday’s gains. That would suck; but what would suck more if it happened and I didn’t own TVIX.

I’ve had enough of this shit, or whatever you’d like to call it. It’s Xmas season and Americans are fat AF. They spend money like god damned fools and have no manners at all. As a whole, our life expectancy is dropping because we do too much drugs and then kill ourselves later on for making such bad life choices. Do not sit there and tell me we’re going to preside over a slowing economy and actually sell down stocks during Xmas season.

Apple estimates have dropped again. Futures are lower and now I’m getting ideas in my head about selling my 3x upside ETFs. I shouldn’t have to make these hard decisions on a Thursday, just prior to it being December. You’ve got to understand, man, life is hard and the toil is real. This is supposed to be easy. Markets sashay into Turkey Day and then glide into Xmas, as we stuff our faces with shrimp cocktail and sauce.

I’ll sell those fucking inverse ETFs, all of them — God damn it. I’ll even start shorting stocks and posting pictures of cemetery statues again.

DON’T FUCK WITH ME.

I bought PYX, ERX, and YINN today, to go alongside my TNA, FAS, and FNGU positions.

Yes, I nailed this move — but did so with a large cash position. I minimized my exposure during a period of uncertainty and now I am pressing the envelope, a little bit, as the momentum picks up steam. My bet is for a continuation of the rally — a fine bet supported by strong algorithmic correlations.

Right now we’re merely leveling out to normalization, succored by Trump’s two magic bullets: a Fed pause and China trade deal.

Ultimately, I’ll be fading this rally — mainly because I don’t believe in Santa Claus and my bias is for a slowing economy. Even still, we’re so oversold, shit can pop off to the upside for another week or two.

How is Exodus doing now, from a mean reversion ranking standpoint? I believe the system is now, once again, accurately assessing the tape — after going through a rigorous adjustment. The way the system is programmed is to learn the present market, the ebbing and flowing of human emotions and how the correlate to pricing.

Our 3 mo algorithm nailed the market bottom for the second consecutive time.

Prices are going up for the annual pricing tier for Exodus by year end. I strongly advise that you lock in these low rates and join the league of distinguished gentlemen, barreling into the festive holiday season.

(Tips hat)

Good day.

I sold TMF for a 2% gain — because the catalyst is gone. In theory, bonds should rise on Fed pause news. Since it’s not, that trade is now dead.

With half the proceeds, I bought YINN, 3x long China.

Why buy now?

We might very well be in the beginning stages of a Santa Claus rally, lads.

People are making a big deal over this and causing stocks to rally. Here is the text.

“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth,” Powell told the Economic Club of New York in a speech being closely watched in what has become a volatile financial marketplace.

The chairman’s observation on rates in early October helped set off a rough period on Wall Street, after he said the Fed was “a long way” from neutral. Major averages dipped briefly into a 10 percent correction and worries grew that more rate hikes might meaningfully slow down the strong economic growth of the past two years.

This is important because it might possibly signal a pause by the Fed. But only an idiot would keep hiking rates after seeing 3,000 stocks drop by 20%. The negative wealth effect, caused by losses in stocks, must be factored in when analyzing the economy. We’re probably past the point of no return and this shit is already slowing.

This is the first of two magic bullets in Trump’s carnival gun, the second being a China deal. After the bullets have been expended, then reality will settle over Wall like a wet canvas and only then will we know the true nature of the market.

For now, rally ho.

Markets are set to rally early on, which makes a bearish note all the more important. On days like today, people want to be lied to and told everything is going to be all right. Stocks eventually go up and if you hold onto them long enough, you’ll make some money. That’s a bunch of horseshit and you know it.

On the issue of market stress and how traders respond to it. Below are two charts, courtesy of Exodus. The first is during the worst market I’ve ever seen, early 2009. It literally felt like the experiment of western finance was fast coming to an end. Notice how tech was being graded by my algorithms.

And now look at how they’re being rated now. Same God damned levels. The market had enjoyed very shallow sell offs, up until very recently. Something changed.

Now let’s look at volatility, a financial instruments explicitly manipulated by The Fed. We’ve been low vol since 2012. Look at that flatline.

Now look at volatility from 2003 to late 2007. Same shit. We were in a period of low volatility, coincided with an easy tape and bull market.

Two things to note from both charts.

1. The stress levels in the present tape are so extreme, they can be compared to 2009. That’s not normal and should never happen in a bull market.
2. If we are in a bear market, we should presume the period of low volatility will end too. Instead of 10-20 on VIX, we should assume it will trade between 20-75.

Maybe, after a little respite, taking a TVIX position won’t be the worst idea in the world?

Let’s have some intellectual honesty here and admit that Trump was railing on the Fed for having low interest rates during the Obama era. Now with the economy slowing and the Fed doing what the Fed likes to do (burn the economy, leaving no survivors), Trump is using Fed’s Powell as a scapegoat.

Trump told the Post, “So far, I’m not even a little bit happy with my selection of Jay,” who he appointed earlier this year. The president told the newspaper that he thinks the U.S. central bank is “way off-base with what they’re doing.”

The Federal Reserve has been raising interest rates as the U.S. economy picks up, but the Post reported that Trump argued these rate hikes were hurting the U.S. economy. The Post also said he blamed the Fed for the recent stock market sell-off and General Motors’ plans to close plants and cut more than 14,000 jobs.

“I’m doing deals and I’m not being accommodated by the Fed,” Trump told the Post. “They’re making a mistake because I have a gut and my gut tells me more sometimes than anybody else’s brain can ever tell me.”

Understand something and listen to me very carefully. This is retard-speak. People who talk about their guts over their mind or facts are being intellectually idiotic. This is dangerous thinking, based upon ancient hunches and ‘feelings.’ Fuck your feelings, Mr. President. All you have to do is cite slowing economic growth and you’d make a fine argument against rate hikes. Now with this gut talk shit, Fed’s Powell is assuredly going to hike rates and shit on Trump’s face with his dot plot schemes.

How should we view this nonsense from an investors standpoint?

Higher rates in the interim. After the shine from the mean reversion frays, expect downward pin action into the New Year’s. That’s just how it’s going to be. Fuck your hedge fund.

Nite.

INSANE PRESIDENT UPDATE:

Trump considered reappointing Yellen to the post, and she impressed him greatly during an interview, according to people briefed on their encounter. But advisers steered him away from renominating her, telling him that he should have his own person in the job.

The president also appeared hung up on Yellen’s height. He told aides on the National Economic Council on several occasions that the 5-foot-3-inch economist was not tall enough to lead the central bank, quizzing them on whether they agreed, current and former officials said.

This goes back to the negative feedback loop I discussed last week, the auto-catalyst that Wall Street jerks off to whenever there is a crisis.

The reason why the financial crisis happened was because we went from super low rates and the subprime mortgage industry was built upon it — homeless men in mansions borrowing from their HELOCs. Today, after a decade of ZERO interest rates, what do we have? Corporate balance sheets FESTOONED with debt, taken out to buoy stock prices, pay bonuses, having a grand old time.

But what happens when the party ends and companies like At&t stare into the abyss and see $186 billion in debt?

The debt/equity ratio comes into play and when the equity part of the equations drops off, the debt becomes all the more meaningful. As unbelievable as it might seem, if the debt/eq ratio gets too out of whack, confidence is lost and the underlying company is considered insolvent. Covenants are broken and the stock goes to zero.

How much debt are we talking about? Excluding the banks, who have trillions by themselves, we’re looking at around $10 trillion plus. Look at the graphic below, provided by Exodus, and you can see the average debt/eq ratio is under 0.8. Some sectors are worse than others. For example, the oil and gas industry has about $300b barreling into the danger zone.

This distress can be seen in HYG or JNK, as bonds for lower quality debt reflect the deterioration in the fundamentals.

And here’s ~$2 trillion in debt whose stocks have raced down more than 10% today. The average debt/eq ratio for these bowsers is 2.3x.

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We’re getting respite now and bargain shoppers are piling in, tripping over each other in an effort to grab some crumbs of profit. We’re late in the year too, which means hedge funds will desperately grab at alpha, otherwise go out of business. This is the market we’re in now. The backdrop is gloomy.

The Fed is almost certainly going to hike rates in December, especially since Trump is calling them out. The China trade talks, if they fail, will really cast a dark shadow over stocks. If they’re successful, well, we go back to the way things were before.

Does anyone really think status quo will work now?

With WTI -30% this quarter, I believe the market is forecasting a severe economic slowdown. Morgan Stanley talked about it yesterday.

We can do some valuation analysis on stocks like AAPL, take their lowest estimates and extrapolate a price target based upon a 10 year moving average of their p/s and PE ratios; but what good is that is the E portion of the PE is a moving target lower? That’s the issue here. We’re looking at FPEs and saying ‘oh, markets have 20% upside from here’, based on numbers that might disappear.

The Nasdaq is building steam now and my trades are working. But I’m not disillusioned. Take your profits quickly and prepare for the rough roads ahead. I wouldn’t stay very long after this week.