A Whole Flock of Black Swans

The rumors are turning into truths by self fulfilling prophecy. I know this is a controversial position, but I know for a fact companies like Lehman and Bear Stearns were forced out of business. Sure, their assets were devalued to the point of insolvency and their managers over-leveraged in a bad market. But, ask yourself, where are those same assets trading now?

Answer: significantly higher.

When markets panic, things get sold down to absurd levels. The problem we have now is leverage. We have leverage at the banks, hedge funds and for the love of second hand sneakers: ETF’s. The retail investor is long fucktarded super charged upside ETF’s, in the midst of crisis. That is a recipe for disaster. Don’t get me wrong, they can be good for a trade, but never part of a core investment plan.

So here we are, three years removed from the biggest credit crisis since the great depression, and it’s happening again. For the love of dead dogs inside 5 star hotels, we’ve been crashing since 1997, continuously, without abatement. There are great values and eventually investors will pay attention. You need to stay in the game.

Today’s decline was God awful (no Jesus). However, we are still +1.5% on the nazzy since yesterday. Small gifts.

With my money, I am not buying anything other than WNR, for the moment. My cash position is down to 20% and my core positions performed admirably today, despite the panic. As of 3:50, I was down 0.75%. Considering I was +8% yesterday, I consider myself lucky.

The recent spate of rumors needs to be squashed immediately or they will become truths. The dicksuckers over at S&P can toss this market into a 1,000 point decline with a French downgrade. There is nothing redeeming about France, not even the cheese.

With gold shooting to new highs and treasury yields at new lows, you know where the money is flocking. There are black swans everywhere and every Tom, Dick and Harry is calling for a grande collapse. It’s so predictable, it’s almost a forgone conclusion.

This is a coordinated bear raid on world indices. Do not be hoodwinked into believing there is much substance behind the fear mongering. It should come as no surprise to see most leaders on vacation now, whilst this is happening. The timing of this raid is sublime.

According to a recent Morgan Stanley report, refiners are pricing in a 2008 style recession plus sub $15 cracks. This is absurd. By no means are we heading back into a 2008 style recession. Moreover, 321 cracks are north of $35 now, new 52 week highs.

You want to know what I am doing about it?

I just doubled the size of my WNR position, in order to reduce my cost and put my money where my mouth is. Granted, the market is fucked up and people are scared shitless over these bank rumors. However, should these rumors get stomped out, all of the refiners will curry the favor of large institutional interest. Look at Tepper’s Appaloosa fund. Not only did he just take a stake in WNR, but CVI and VLO are amongst his largest holdings.

With regards to WNR: they hedged a bit to pay down debt. They’ve paid down more than $400 mill in debt since 2008 and intend on deleveraging some more by December. Furthermore, they have several hundred million dollars in assets for sale, which will help paying down debt. Bottom line: they are a cash generating machine now, having 100% exposure to super cheap WTI crude, benefitting from the Brent-WTI divergence (Brent now trades at a 29% premium to WTI).

In my opinion, one way or another, she trades up to $25, ARGGGGGG (pirate voice).

Well, that was fast, wasn’t it? I didn’t think we’d retest the lows immediately. I figured it would take a week or two. Listen, while France CDS are blowing out and SocGen is imploding, you cannot buy stocks. This is a worst case scenario, one that crushes investor sentiment, grinds it into dust and throws it into a fan pointed towards the ocean.

Having said that, I haven’t sold anything either. I am in a holding pattern, with more than 30% cash. I’ve had the same positions since last week Friday and have no plans to make adjustments.

When the dust settles and the black smoke dissipates, I will be buying refiners in size, namely HFC, DK and more WNR.

For now, I’m watching the shit storm, in amazement, and waiting for an opportunity to dollar cost average into some of my under water positions.

To restest the bottom? Sadly, I think not. Immediately following the flash crash, my short thesis revolved around the premise of retesting the lows. Well, eventually, we retested them and more. The market loves to test the mettle of investors; this will be no different.

First let me lay out the short term thesis for a bull run.

1. The recent jobs report was better than expected.

2. People will start to believe we are in a “soft patch”, like last year, instead of a prolonged drawdown.

3. Italian and Spanish yields have been dropping, alleviating funding pressures.

4. Short sellers and hedged managers are heavily exposed here, positioned for end of world trade. Well, it isn’t.

5. 14 of the 30 Dow members have FPE’s less than 10. Moreover, using low end estimates in The PPT screener, the average FPE comes in at 13.5x. That’s using LOW END numbers, not mean.

The reasons to sell stocks, include:

1. Asian growth slows.

2. The possibility that Italian and Spanish yields climb again, coupled with inaction on the part of the ECB.

3. US growth continues to slow.

4. Obama’s approval rating improves.

5. Aliens invade America and enslave all traders from the NYSE.

Look, the whole crisis was concocted by insidious bond vigilantes. We were sitting at new highs 3 weeks ago because corporate balance sheets are great, we were in the midst of an ipo boom, and more than 80% of companies were beating analyst estimates. The whole S&P downgrade story is a crock of shit. Our borrowing costs are at record lows. We piss on S&P.

Providing the ECB controls the bond vigilantes in Europe, there is no reason to believe we will not charge higher by another 500 Dow points.

Other risks to the system lie within the performances of large hedge funds. I get the feeling a few of them just blew up and will be forced to liquidate.

We are certainly not out of the hot water yet. We need follow through and fast. Should we drop 200+ tomorrow, that would mean an immediate retesting of the lows. If we keep the squeeze going, we will “V-shape” higher until fall, when I believe brand new issues will confront this market, deriving from the hideous and barbaric continent of Asia (see my 2011 predictions).

First, anyone interested in looking at the technical patterns of previous washouts, see ChessnWine’s video. Fantastic job.

My initial reaction to the Fed news was “uh, oh.” I hung up the phone, telling my friend “we might tank here.” Then after further review, I figured we had to stop sucking on the Fed’s tits eventually, so why not now? Fuck it. Then I witnessed the unbelievable, as 2yr, 10yr and 30yr treasuries skyrocketed, sending yields to historic lows. Our financing costs as a nation are so low now, we should issue $5trillion in notes tomorrow, in order to lock in these absurd yields.

Gold started to soar and the Swiss Franc went parabolic to the upside. The market was down 50 and sinking quick and all I could do was pace back and forth my television, watching the fucktards on CNBC smugly analyze the news. Truth be told, I was as nervous as could be, fearing the bottom was about to drop out of the market. Aside from my managed accounts, my personal money is at stake here and that is fully invested, with cash less than 5%. The market plunged, moving down 200 and I felt as if my heart was about to explode.

I picked up the phone and called my friend. You might know him as “Chuck Bennett.” In a very calm and cool way, he said “fuck this shit, this is the bottom. We’re going higher. Look at yields. People need to put money back into stocks; this is nuts.” He furthered, “watch, we will close at the highs of the day.”

In an odd way, he calmed me down. I needed to hear something positive, especially after watching THAT FUCKTARD, Rick Santelli, promote fear on my teevee.

No matter what, I never intended to sell or buy anything today. However, the way this tape is looking now, if I might be so bold, it appears “The Chuck Bennett Bottom” lives and we have legs into the bell. If  not today, I will be adding to my positions, WNR, GSVC, EMN, DECK and CLF. There is no reason to add diversification when I could dollar cost average into current holdings.

All in all, this is the best case scenario. We didn’t get QE3 and plunged as a result. We looked the Zerohedgers into their beady eyes and kicked them down egregiously deep water wells.

Well, the Fed isn’t playing to the market anymore. The market is going to have to deal with its problems all on its own. In an odd way, this is refreshing. Although I wanted QE3, it is unsustainable. So here we are, on our own, and the market is recovering from the original dump.

Before I make any predictions, let me just say: I am doing nothing, once again.

Let’s see what this market is made of. This is a pivotal day and the world is watching.

My core positions (WNR, EMN, GSVC, CLF, DECK) are rising and I am happy to take back some of my money. However, I am not deploying any of my cash reserves ahead of the Fed. It’s too big of a gamble and I am not sure Bernanke will do another QE3. The market demands QE3 and if he ignores it, well, we’re gonna fucking tank. In order to motivate me to get back into the market, I need to see some momentum, with conviction. Who knows, perhaps the market will display some real risk appetite after the Fed announcement.

Whoever says they are “looking for the market to throw up” is a fucking imbecile. As of yesterday, we were more oversold than at anytime in recent history, even more so than 2008. To suggest the market needed to show more panic is disingenuous or that person has no idea how to read a tape. We don’t need more blood; we need fucking buyers.

I have a lot of cash on the sidelines and if I deploy it correctly I can easily make back my losses and more. While it’s true, I am all about risk and pushing the envelope, for now, I am more interested in seeing stability, rather than jumping in ahead of real buyers.

I’ve been trading this market since the mid-90’s and I’ve seen really bad drops, namely in ’97, ’98, 2000, 2001 and 2008. Heck, I am a fucking expert in witnessing market calamities. Anyone remember when the market halted trading back in 1998? During yesterday’s futures bloodbath (-300), following a -600+ day, was as bad as it gets. The rout in Asia, then the subsequent drops in Europe, were outright ridiculous. Germany went from +1.5% to -7% in less than 2 hours. That’s capitulation. It’s a washout. After all, Italian and Spanish 10yr yields have been easing. The funding crisis, seemingly, is being addressed. Therefore, as logic dictates, stocks have 1,000 points of near term upside.

I am not posting this for your pity or to teach you any lessons, but to document my mistakes during this collapse.

Just two weeks ago, I was sitting on 16% year to date gains in an 80% cash position. I felt the market was a sell until September or until Bernanke announced another form of quantitative easing. I intended to put 25% of my cash into TLT, due to the seasonal trends in the month of August for bonds, which are flawless. So, what happened?

First, I got distracted by the Congressional debt ceiling debate. They pulled an old Kaiser Soze on me, a regular sleight of hand if I might be so bold as to say so. The reason why I was in cash was because of the European debt crisis. I felt, and still do, Italy and Spain are too big to save. However, the Congressional clown show made me forget the answers to the questions that plagued me. I bought into the market on the premise I would sell into a debt ceiling deal. It was all a ruse, a ploy that helped some get out while schmucks like me bought in.

I fell for it.

The deal was announced and futures were ripping in pre-market trade. Shortly after the market opened, everything was sold and with great vigor.

I held my ground, believing the sell off was reactionary and without merit.

Then, I overweighted in WNR, due to my belief that the company would smash earnings because of industry wide fundamentals. On the day they reported an eps shortfall, the market dropped 500+, exacerbating the selling in WNR, sending shares down more than 20% in a day. At the time, I was 20% cash and looking for longs. Remember, I just finished booking sick profits on a number of stocks, like DECK.

The very day before the 500 point decline, seeing the market weak, I put 30% of my cash to work in a number of names. At this point, the Italian and Spanish news flow was beginning to thicken and tensions were high. However, like a jackass who had the answer key but didn’t bother to look at it, I chased stocks down the rabbit hole.

The market cratered and I lost 10% in one day, all but wiping out my year to date gains. Then on Friday, stocks continued to sell off, following a very good opening. I didn’t like the patterns, so I sold most of my positions, raising cash levels to 70% again. While doing this, I booked millions in losses. However, shortly after I sold, a news story broke that the ECB was going to buy Spanish and Italian debt. To me, that meant QE1 for Europe. What I failed to acknowledge is how retarded the Europeans are when it comes to taking action. I got hooked, allocating cash to the markets, leaving my reserves at a respectable 30%.

Then came today. I didn’t buy anything or sell; but my positions plunged lower, sending me down more than 5% for the day. The only reason I wasn’t down more is because of my 30% cash position, which is now 35% all on its own.

Where does that leave me?

65% long, 35% cash, down 8% for the year aka “new lows.” Aside from the losses, my psyche is badly damaged. It’s one thing to miss a trade, it’s a whole different story ignoring my own advice and getting blown up as a result. The game plan going forward entails lots of finger crossing. I am fairly scared to death that this market can plunge 10%+ in a day. I am putting all of my emotional capital in The Fed, which is a future mistake yet to be revealed. I can see myself making mistakes in real time and it shocks me.

We’re all waiting for respite, some semblance of normalcy in order to reduce risk. However, when markets are this oversold and sentiment is at the point of panic, markets crash. Granted, we’ve crashed over the past 12 days, down more than 17%. But if confidence isn’t buoyed ASAP, we’re gonna crash some more.

Sadly, this time around, I don’t see our leaders doing anything. I mean, these fuckers aren’t even trying. In the midst of a global meltdown, our fucking President is hosting $15,000 per plate fundraisers. Something is wrong. It’s as if they’ve resigned themselves to let this thing just play out. The consequences of their inaction will be devastating for this country, and more specifically me.

Filed under “Chart Art”

You’ve been clamoring for this day for years. Over the past week, we’ve undergone a major sell off on extraordinary volume, while the elite were caught offguard on vacation. You could not have planned it better. CDS spreads for the banks are blowing out and BAC is off by 20% today. Whole countries are having issues financing themselves, as yields soar to new highs.

By the time the ruling elite come up with a plan to stem this crisis, the market will be in shambles. As the dicksuckers on CNBC declare “this sell off has been orderly,” nothing orderly is taking place in my portfolios. I’ve never underperformed so bad, in my entire life, than the past week. Just Friday I kicked out positions, raising cash to 70%, only to buy back in later, hoping for a reversal in fortune.

This is the nail in the coffin of the retail investor. He is done.

Having said that, the smartest managers in the world have been tricked by this tape. Do not throw yourself into a lit fireplace for losing money. While it sucks to be on the receiving end of sheer fuckery, it can be recovered. This is a panic. Put your charts away, for they will do you no good. The selling will stop when the last bull (Ned Riley) buys up lots of FAZ.

Taking a look at TVIX, it looks like Carl “fuck you, give me 3 seats on your board” Icahn initiated a hostile bid for the entity. This is fucking madness and I do not appreciate my twitter stream filled with fuckfaces who are elated over perpetual market crashes. If you managed to call this tape correctly, this is not the time to brag or drag people through the mud. Most people are invested in stocks and are enduring massive losses. Some people take losses badly and it can affect their health. All jokes aside, I will try my best to provide as much news and commentary as I can, while trying to maintain my book of business here, in the real world.

Fuck S&P and to hell with this administration’s futile attempts to buoy the economy. We do not need platitudes, but action.