October is off to an Insane Start

Consider the following. We have been entreated insane upside and downside moves for the month of October and have gone nowhere so far. If you fell asleep while driving and sashayed into a coma for the past two weeks and just woke up today, you’d think nothing happened. Boring tape.

Consider the chart below of raw commodities, going nowhere slow for months. Does this mean inflation has abated?

Look at UNG — total scam.

You mean to tell me 550 million people of Europe are on the cusp of freezing; meanwhile UNG is getting knifed down daily? No, I don’t buy it. SCAM.

They keep telling us of these fucking shortages.

MUHHHH — YOU’RE NOT GONNA HAVE A TURKEY THIS THANKSGIVING.

MUHHHHH — TOILET PAPER AND CLOROX WILL NOT BE AVAILABLE UNDER 2029.

MUHHH — WE HAVE HELIUM SHORTAGES.

MUHHHH — WE HAVE SEMICONDUCTOR SHORTAGES.

MUHHHH — HOUSING SHORTAGES.

And then the exact opposite happens. Look at MOS — the price level is was before the war, in spite of MUHHHH WE HAVE A FERTILIZER SHORTAGE.

We’ll jump off the psychotic rant for a moment and chalk it up to MUHHH DEMAND DESTRUCTION. The economy is so bad, we can’t find kids to flip burgers because MUHHHHH — LABOR SHORTAGES.

Fuck off.

I went in long, 10% UVIX hedge.

It would be extremely gay to see markets trade down again tomorrow after we busted loose Thursday, collapsed on Friday and once again busted loose today. It would be extremely cruel and also unusual. I do not believe markets will collapse tomorrow. Ergo, I am long. Cash sits at a cowardly 58%, which may or may not be depleted by end of session.

I am also not sure if I want to hedge, even though I am soooooo sure that stocks cannot, for any reason whatsoever, trade lower tomorrow. Why would it do that?

During this session, we have slowly traded sideways with breadth deteriorating from 94% to 74%, a classic trick by them to steal your shares.

You’ll be over there thinking you’re all smart and shit, genius, saying to yourself “this is it. The collapse is here. I am going all in SQQQ” and the BAM your cock is cleaved off by some feminine looking banker.

It’s possible we fade from here until the close. But I place the chances of trading down tomorrow at a firm 0.00%. If it does trade down tomorrow, why, I will will SHOCKED — SHOCKED I tell ya.

Natural gas is plunging, bonds are rallying and the dollar is down, whilst stocks absolutely skyrocket out of the box. The BOE is deep into retarded QE and Russia is hammering Kiev with Kamikaze Drones. All is well.

SCENE IN KIEV: THE MOPED SOUNDING MACHINES ARE IRANIAN KAMIKAZE DRONESpic.twitter.com/t1AxibguK7

— The_Real_Fly (@The_Real_Fly) October 17, 2022

That came off glib. Truth is, Kanye West is buying parler and we are in a clown world, so anything can happen.

I closed my shorts at the open, kept TNA, bought FNGU in yolo, and just sold my TNA a moment ago for +10%. I will move to cash here and reassess.

The market is pricing in some sort of great doom. You see it in the semis, even the oils. The market caps are not matching the current business prospects and have greatly discounted a wide variety of areas — anticipating a tight fed and subsequent recession.

In Stocklabs we measure valuation data for PE, PE, and PB going back to 1993. I can tell you with certainty — the market is “cheap” based upon current valuations. However cheap it might be, the numbers are not reflecting this great doom that is to come.

The median PS ratio for all stocks in our database is 1.92 — 2015 levels.
Median PE is 13.92, 2008 levels and before that 1993 levels.
PB is 1.41, again 2008 levels.

Here is a visual of the tech sector.

The scale of the drawdown for once upon a time high fliers is nothing less than staggering. Take for example the Canadian bellwether SHOP — once traded at 45x sales during the COVID stay at home fad. Now it trades 6x sales and based upon future sales estimates — it trades with a forward PS of 3.8x.

But here’s the issue with SHOP and many others like it.

Whilst they have over $5b in cash, $1b+ in debt, the market seems to be projecting a massive drawdown in Shopify’s cash horde and bleeding out of its business. If they’re bleeding out now with the general economy ok, what will their cash burn look like in 6 months if GDP is -3%?

Netflix is trading 3x 2023 sales. Consider they traded down to 1.5x in 2008, before thinking it’s historically cheap.

Lastly, INTC is trading 1.45x sales, cheapest I have on record. Back in 2008 it traded 1.79x. AMZN at 2.24x is way above its 2008 lows of 1.32x; but it’s a totally different company now with a large part of their business in cloud services. Speaking of the cloud, CRM is trading 4.8x sales way above 2008’s 3.53x. AAPL is still extremely expensive compared to 2008, 5.7x v 2.4x sales.

And JPM is cheap at 1.13x book. But during the financial crisis markdowns of 2008 — it traded down to 0.5x and traded below 1x book all the way to 2016.

In summary, we are without question pricing in a sharp economic decline. The valuation of the overall market is cheap. However when looking at the monopolies we now have — stocks can go significantly lower if we are to get down to 2008 panic levels. I’d argue against the need to trade down to 2008 levels, since the crisis we have today is less financial and more of the world ending varietal.

The semis lost 10% this week. But more than that was the decapitation of areas of the market that had been strong — as people/managers look to raise money anywhere they can.

Observe the carnage in the ferts — totally disengaged from reality.

It was liquidation all day long, with intermittent bouts of life which cut me up into ribbons as I stumbled through one 3x ETF trade after the next. I traded ineffectively from a loss of 30bps to more than 100bps in a manner atypical of my usual self. The final nail in my trading coffin was the complete and sudden collapse of volatility at a time the NASDAQ was hitting new intra day lows. I have a 20% UVIX position and that position had been up 3% prior to the collapse in VIX. I am now flat in that position, holding over the weekend in case of sincere and abrupt chaos.

Month to date, I am up 3.1%. My intent is to grind out gains, 30bps here, 50bps there. As much as I would love to achieve grandiose returns, in this environment we are betwixt by hair raising short covering rallies and perpetual collapses. If you lean in heavily short on the wrong day — you might seriously find yourself down 10% for a single session — same goes with a long only position. In different markets, normal markets, I am almost always aggressive and barely hold cash. During the 2020 and 2021 extravaganzas, it wasn’t unusual to see me 150% long and pressing gains into triple digits. Now, I am almost always 50%+ cash and I take gains as low as 0.5%.

Simply stated: I am trying to survive and I am also trying to preserve my +50% YTD gains.

In other news, we continue to make progress with our options platform under development. If you want access to the beta trial, drop an email here.

Let’s review our current situation.

A remarkable headline:

THE US TREASURY HAS ASKED MAJOR BANKS WHETHER IT SHOULD BUY BACK SOME US GOVERNMENT BONDS IN ORDER TO IMPROVE MARKET LIQUIDITY.

The US 10yr is greater than 4%. US 30yr mortgages in excess of 7%. Housing is currently in decline.

Another startling headline:

UKRAINIAN FINANCE MINISTER MARCHENKO ELECTED TO CHAIR THE BOARDS OF GOVERNORS OF WORLD BANK AND INTERNATIONAL MONETARY FUND IN 2023

The poorest and worst economy in “Europe” (more like tartar-land) is going to make recommendations for the World Bank. I’ve got one: more billions to Ukraine.

How’s the war going? IT IS GOING TERRIBLE. Why do I say that? Because with NATO weapons, Ukraine is now arrogant. We are getting absurd statements out of Zelensky’s top advisors now.

ZELENSKY ADVISOR: “WE REJECT TALKS WITH RUSSIA. WHEN WE WIN THIS WAR, WE WILL DECIDE THE FATE OF RUSSIA.”

How does this rectify itself? It doesn’t. It only causes Russia to escalate.

The Yen is now sporting a $148 handle, in full retreat — breaking down past the point where the BOJ intervened.

Oil is cascading lower. There are no bids today. I get it. We were up large yesterday, so we are merely revoking yesterday’s rally. It was ill placed and without warrant. Nevertheless, the wear and tear of all this volatility is going to break things. The future isn’t looking better for anyone, but worse. Under those conditions, even if we are oversold, you must hedge.

I sold out of almost everything, including SOXL, which is long semis. It was up 2% early going and is now leading the way lower, now off by 5%. The chip sector is back to creating widows. It always had been this day in the olden days. You young whipper snappers have been spoiled in this chip era of globohomo where stocks like LRCX and ASML only went up.

This era is now over.

Now we are entreated with collapse broken up by intermittent bouts of bullishness which is purported and promoted by dolts.

The overarching trend is lower. There is no base case for up stocks other than short squeezes.

Rates did not collapse and the dollar held its own on a massive up day, with the Dow up more than 800. I closed with a slightly bullish position — hedged by TMV and UVIX longs.

Things of note:

JODAS blew the fuck up today and won the Stocklabs “TRADE TO ZERO” contest. He was all in RLMD into today, into a halt and 80% downside pin action. His account started at $100k, went as high as $174k, and finished negative $14k. Well done. He gets $1,000 directly from my purse (pause).

I also added my YOLO account to Stocklabs. It is an “all in one stock” portfolio designed for insane trading action. I started this piece of shit account about a month ago at $15k and have since jimmied it to $26k. If it blows up, so be it.

Finally, I made 2.2% today, increasing my YTD gains to +50%. If you can take one thing away from Le Fly it is he’s never fooled or tricked and the war is something he firmly believes in and watches — ebbing into outright insurrection. Just kidding, naturally, of course — these sentiments are only meant for my Minecraft universe.

We finally are getting some positive backtest results on our intelligence algorithms, which is a measure of the aggregate tech score against historical returns. In this case, I am backtesting over 6 months.

I am presently at session highs, +194bps, long SOXL at 2.5% and UVIX at 8%. I like to use hedges when I want to slow things down and then trade tactfully around them, whilst adding to positions in small increments. For this fast tape, the only viable options for me is to trade ETFs. They’re liquid and I don’t need to worry about XYZ having a counter-trend day.

Into the close, I suspect we rally into the close. The fact of that matter is, no one expected the market to rally into what people are saying will be another +150bps in Fed rate hikes over the next two meetings. Eventually, these hikes will lay waste to a wide variety of areas. But for now, people want to trade up stocks and feel good about tomorrow when fully knowing there is nothing but doom waiting for them.

It’s fun to pretend.

Markets were hammered lower at the close and I was confused as to which direction to run. I had entered the session net long, and then with the market hammering lower I quickly switched to short, then back to long — twisting myself in the wind — sinking to a low of -1.3%. I then managed to convince myself to bulk up on GUSH whilst selling out of my long equities in order to remain focused on ETFs.

As markets refused to go lower and my TZA position, which had been up nearly 2% from my basis sunk lower into loss, I had a choice of whether to add to it in 2.5% increments or say fuck it and sell it out. Judging the news and the refusal of the market to drop — I sold it.

I then managed my way into various ETF, adding to them as the market turned up and crested and sold it all +175bps for the session, in a chaotic morning whir where my PNL was jumping 20bps every 10 seconds.

I’m still bearish as fuck and may revisit the short side before the close.

Stay tuned.