THIS IS DEFLATION

I’ve been saying this for a long, long time. Ever since 2008, we’ve been in a deflationary vortex. Many people out there have been misinformed about inflation and how QE works. None of that Fed money was making its way into the economy, aside from the ‘wealth affect.’ I think it’s pretty clear, as well as evident, that without the Fed to buttress asset prices, the world is, inexorably, inside of the deflationary vortex.

Inside of this vortex, prices go lower. Commodities crumble like coffee cake and the dollar/bonds rise. The yen carry trade falls to pieces, forcing Yen higher.

Any nation who is dependent on commodities will see their currency ripped to shreds. It’s important that you know how it works, otherwise you’ll lose money.

And, finally, any stock that pays a dividend higher than 3%, particularly in industries whose main input cost is fossil fuels (utilities), will see their share price rise.

Stocks are the unfortunate victim in all of this. Simply put, there isn’t any appetite for risk and they must trade lower.

However, rest assured, as this process plays out, the central bankers will come to their senses and understand that QE must be forever. I cannot tell you when they will issue a statement, but they will. If they don’t, the market and everything that goes with it, will poleax itself into the oblivion.

Bullish: TLT, XLU, FXY, UUP

Bearish: GLD, SMH, FXE, USO

A friend of mine owns several petrol stations and likes to spend an inordinate amount of money on all sorts of sordid things: cocaine, booze, women and guns. He tells me the recent decline in oil and subsequent drop in gasoline has been a boon for him, since his business depends more on volume for its margins. Then it clicked and I remembered a certain stock that bucked the trend during the harrowing late 2008 decline in oil.

Ticker is PTRY.

They own gasoline stations and they are merchants of low quality food and drink. As prices drop, they bank coin. It’s as simple as that. I’ve only done rudimentary research to support my claims, so please do your own due diligence. But I think you will find a unique opportunity here; so please, keep it between you and me.

If you don’t believe me, have a look at PTRY’s late 2008 returns versus USO.

September

Oil: -11.7%

PTRY: +15.5%

October

Oil: -32% (lolz)

PTRY: +3.92%

November

Oil: -24%

PTRY: -12.1%

December

Oil: -21%

PTRY: +11%

Other gasoline station plays include COST, IMKTA and CASY.

The last time I saw oil stocks get pounded like this, it was the late 90’s and the internet had just been invented. I think people thought they could create their own oil online or something. But the price of crude tapped out around $10. At the time, I was trading internet and oil stocks, so I remember that moment in time as if it was yesterday. No one, and I mean no one, was keen on internet stocks at my firm. Everyone was playing games with Kodak and stupid shit like that. Back to oil: it plunged and I remember taking a 20% loss on one of my holdings, only to see it drop 50% and then another 50%.

Like all massive declines, the precise percentage loss of most oil stocks back then was around 70%, give or take a few points.

The humorous thing about the catastrophe in oil today is the laissez faire  demeanor of the market, generally shrugging it off.

Oh, but before it shrugged it off, it needed to switch up the patterns and GRAPE-RAPE some of you into thinking we’d be in for a late date drop. Well, we dropped and now we’re popping.

See how they changed the pattern on you? You were over there shorting stocks, buying VXX tits like a bird eating seeds. Now you are being slapped in the face with small pieces of bamboo again.

Stocks like GILD, PANW, TRN and FMSA interest me down here. I sold out of my trading position in PANW 13 points higher, so I don’t mind going back to the well. The only issue that I have with buying stocks, other than utilities and REITs, is that they’re probably on the cusp of going much lower. All of these things that you see happening before your eyes isn’t by accident. There is a disease permeating under the surface and will soon strike dead all of those who are exposed.

How can you survive the storm?

The gulf states aren’t panicking as much as you think because oil is priced in dollars. Get it? In a way, the rise in the dollar has hedged much of the downside action in crude.

Here is an outline for what to look for, when allocating new money.

Rate sensitive industries, like utilities and REITs. Avoid banks, as lower yields crushes their margin.

Mega-cap staples yielding greater than 3%.

Bonds

Restaurants

Retail

and lastly airlines.

If this ebola nonsense takes a back seat and the economy remains stable, then airlines will soar. Until we can figure that out, I’d stick with the Utes.

IMPORTANT BULLETIN: This evening Chessnwine will be hosted The Annual iBankCoin Markets in Turmoil meeting. Please leave your questions for him in the comments section and he will try his best to answer you in a video. The show will begin at 7pm.

I will save both euro-disney and the price of oil, only if you pet my horse (Jacko)–as we look into the sunset over the desert sands.
Crown Prince Alwaleed, Saui Royal Family, Kingdom Holdings

We need to see mass hysteria. I am talking about men pulling out their hair, talking to themselves, wondering how it all went wrong. This mornings circle jerk is a good start. Everyone got all happy about the open, only to be slapped in the face with a skinny piece of bamboo. The way this sadistic market works, we will rally off the days lows, then throw it up again.

The point of this market, to sum it up and condense it for you, is this: it wants all of your money. The sole purpose of the stock market is to remove you from your money. You can ignore the daily price fluctuations and simply be a long term guy. You might sleep better at night that way. Or, if you’re a trader, you really need to stop playing high beta 100%.

During this malaise, aka market tumult, look at how well my utilities are fairing. In the past, stocks like ETR, EXC and DUK have given investors double digit returns during periods of risk off. By the looks of this market, if we are truly entering another 2000/2008 “X-mas is canceled” holiday trading season, you’re gonna wish to God, or whoever you pray to, that you listened to Le Fly and bought some power, instead of those bastard stocks you’re so keen on now.

To bottom we need capitulation.

German, French, Swiss and Netherlands 2 year bond yields are NEGATIVE. That means bond holders are paying them to take their money. What a wonderful position for a government to be in, no? Oil prices are plunging again and we are setting up for a rally?

Let me now warn you of a very ominous fact, regarding this market. Since 1999, the only two times the Nasdaq went down in both september and october was in 2000 and 2008. In both years, actual centaurs, beckoned from the pits of hell itself, were presented on the exchange floors to kick in the faces of investors, globally. Not only did stocks trade down sharply in October, they tanked in November too–off by 22% in 2000 and -11.4% in 2008. Moreover, during both years the United Steaks was thrusted into deep recession, the sort of economy that made people cry.

I see the futures are up this morning and all of you are wearing your hazmat suits to work today. Ebola stocks are all the rage and nothing can stop them from lifting by 30% per day. But ask yourself a question, just prior to buying them: “am I out of my fucking mind?”

The Islamic State is on the move, just 8 miles away from Baghdad. In Kobani, a kurdish town bordering Turkey, they are on the verge of overrunning the city, despite US air raids. There have been reports of genocide being committed there, with “hundreds of headless corpses” litterering the streets, some with their eyes gouged out too. All of this is occurring, while our dear NATO ally, Turkey, watches from their tanks. What the Turks don’t realize is that after ISIS finishes off the kurds, they will invade the Turks and cut their heads off too. These people must’ve been forged in middle earth, created to wreak havoc on the human race. To just stand by and do nothing is almost as bad as committing the crime itself.

Having said that, the futures are higher and we might capture some of our coin back today. However, I am starting to get the feeling that rallies should be sold into.

I went to take a quick gander (nothing too special or time consuming) at previous market slides. Since I believe we are repeating 2000, I took a look at some dot bomb stocks, like JDSU, to get an idea of what we may be in store for. I also took a look at some of the March-May losers of earlier this year, peak to trough, just to get a sense, mind you, of what a person, such as yourself, might be facing.

The results are in.

During the majority of peak to trough ‘situations’, stocks fell no more or less than 70% over a 3 month period. Typically on the 4th month the gimp comes out from the cage and really gives it to the bears. This go around, it appears the damage is being afflicted to energy shares. This might pose a minor problem for you repeat fans out there. Unlike the dot coms and bubble stocks of 2014, the oil stocks have significant earnings power, cash, and assets. I suppose for the sake of clarity, we can forget all of that shit and simply imagine the fires to come.

Doubly unfortunately, even during the kick ass end of western finance days of 2008, the oils never really came down too hard. This is with crude ‘coming in’ (lolz) from $145 to $36. Shares of CXO only dipped a mere  38% during september and october of ’08. At the present, CXO is already down 23% from last month. So, clearly, we have a problem here, as there isn’t a credit crisis or plunging oil price to speak of. I mean, oil has come down, but nothing like it did in ’08.

Making the case for -70% returns in 2014, at least for the oil stocks, is a really hard one. We’d need something spectacular to occur. But even if that did happen, these bastard companies have more money than God and would simply buy up their own shares, whilst sipping on Long Island Iced Teas (fucking bastards).

In summary, if this is 2000 all over again, expect your favorite high beta stocks to decline by 70%. Most of them are already down a cool 35%, so you only have another 35 to go. As for the oils, I’m afraid, and I deeply apologize for this, their downside is somewhat limited from here. The nefarious price action is probably a result of strong headed hedge fund managers playing the stock market game wrong, on margin. Now they’re crying, shitting the bed, and generally getting flushed out of the ballpark.

There’s no point trying to figure out the market. The last 20 minutes of trade was totally dictated by high speed computer generated sell orders. The market went from flat to down 220 in the same time it takes to eat a ham sandwich. There’s no trading that sort of tape, unless you’re positioned for a late day melt down. The next phase of this market will likely change patterns, in order to destroy those who are trying to game the casino.

Perhaps the market will rally 220 points into tomorrow’s bell? Are you willing to risk it?

I will strongly state my opinion that we are NOT entering a bear market, despite all of the apocalyptic prices action in the energy complex. That is interesting, by the way, as oil has traded higher for two straight days–after rallying from significant beat downs.

There is nothing on the horizon that scares me, short of a 3 million man ISIS army. Ebola is not going to become a pandemic and earnings will be just fine. You do realize MCHP has missed before and that didn’t mark an end to the tech trade, right?

SLCA was down another 10% today. The energy complex is falling just as hard as the application software stocks fell in April.

Do you remember the sort of returns those stocks offered in May through August?

You need brass balls to buy into this tape.

In the meantime, utilities and REITs look great. My top holding, ETR, wants higher.

Current map of America, as presently situated

When America was founded, the people chose to live along the east coast, mainly the northeast corridor. There is a specific reason for this, much to do about migration from europe and the like. Not before long, men of extreme importance and industry took up quarters in the northeast, establishing it as the stalwart section of this great, new, vibrant world.

Then poverty crushed the skulls of the lower middle class. Couple that with the fact that low-brow immigrants streamed into the nation; we, the people, desperately needed a place to store the third estate.

So we sent them out west.

We published elaborate tales of splendor and riches to be had in the Dakotas and California, most of which were wonderful lies. But it did the job. We used these pawns, these whiskey swillers and grave robbers, to settle the lands, kill off those annoying Indians and build us a fucking railroad. After they did all of that, we simply took the choice real estate for ourselves.

So the question I pose to you is this:

What sort of lineage and genetic gene pool resides in these “utterly useless” areas of the Unites Steaks? One might argue it is a gene pool passed down from charlatans and hucksters, persons of low standing who thought it made sense to take the whole family on a 3,000 mile road trip through dense forests and Indian arrows, just so that they could mine for some gold and become rich. These were the original lottery players, the lady at the bingo machine trying to make it big.

I realize fly over country is now populated with plenty of good people, most of whom are bible thumping maniacs who pride themselves on being good mid-western folk. But I remind you to keep a close eye on these people, for they are the direct descendants of persons of ill-repute, gamblers and vagrants who embodied the term ‘hobo’ and thrusted chaos upon the American landscape, all for the sake of some quick money and cheap opportunity.

What is ‘The Bubble Basket’?

Back in April of 2014, following the sharpest draw down of my professional career, I created a bubble basket, one that mirrored what I imagined David Einhorn’s basket (why not? he seems to be smarter than 90% of managers out there) looked like. He has disclosed to be short about 100 bubble stocks, all high valuation, high hype, low in profits, pieces of offal. My ‘Bubble Stock Index’, placed inside of The PPT is, essentially, a thermometer of risk appetite, the sort of appetite that gets you into trouble.

When the index was created, it cratered down to 80, only to come racing back to new highs, AND MORE, in August of 2014. If you recall, I penned this piece, warning you to sell.

Well, here we are now and the bubble index has been coming in.

Frankly, it looks broken. People don’t have the appetite any longer for this sort of sordid investing. We may bounce from these extreme oversold levels. If we do, I invite you to examine your portfolios and to sell anything trading more than 10x sales. Granted, I own a few high valuation stocks, like PANW and CYBR, but CYBR is meant to be a trade and PANW is long term. If you like SPLK and FEYE for the next 10 years, ignore this post. We’ve all become degenerate heroin addicts in search for a quick fix. Back in the old days, when men were still men, they’d take 90% draw downs and be delighted to have been apart of the game, retired, then jumped out of windows. Nowadays, we whine and bitch and moan about our prospects or lack thereof.

In summary, the Bubble Basket has broken lower and I expect more pain to come, before things start looking good again for you River Boat gamblers.