Can We Resist the Temptation?

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.

We are seeing a fucking replay of 2008, aren’t we? All of the trillions of dollars spent on stimulus, bailouts and QE down the drain. Due to the bailouts of 2008-2009, sovereign nations took on too much debt, trying to transfer risk from banks to us. They figured if the economy came back and taxes were raised, they could stave off collapse. Let’s be clear, without the bailouts of 2008, for better or for worse, the entire system was going to collapse.

Over the past 3 years, we’ve been sustained on free money and lots of eloquent speeches. The reality, we haven’t grown fast enough to dig out of the massive debt hole. While everyone feared the inflationary side effects of quantitative easing, the real threat was deflation, which is the reason why Bernanke continues to print at a rapid pace. Asset price destruction occurs quickly and it is absolute. The only real threat of inflation, in the eyes of the Fed, is wage inflation. Due to our stupid economy, wage inflation hasn’t been a problem in 30 years.

As we sink into the vortex of asset price destruction, it is clear to me there is only one way out: print more. The problem with printing more is the unfortunate side effects of artificial, manufactured inflation. The alternative is debt restructuring and failure on a monumental scale. That simply isn’t going to happen, especially after seeing how policy makers managed the crisis of 2008.

This is the primary reason why I have been long. It was never based around the idea that the economy was terrific. Sadly, like many other investors, I was long because while the printing presses were running, the prices of equities were gunning. There is no debating that fact.

People are fleeing for the exits now based upon the premise that “it’s all over.” Can the ECB bailout everyone? Is BAC going to bite the dust this time around? Moreover, is there political capital left for future bailouts, if needed?

It’s 2008 all over again and policy makers, once again, seem stupefied to stem the contagion.

German markets plunged 5%, alongside all other exchanges. We’re knifing lower so fast, so egregiously, people cannot fathom the losses just yet. Long volatility has been the trade of the year thus far (hmm, I wonder where I heard that before?). And, I’ve managed to dig myself a murderhole, filled with WNR, DECK, GSVC and EMN, then swim in it.

As S&P downgrades anything related to the U.S., I ponder to myself: how do we get rid of these people?

You don’t need me to tell you how oversold we are. It would be easy for me to step in here today and go long a bunch of shit, but that would be reactionary. You know how I’ve been spending my day? I haven’t looked at CNBC or stocks for more than 10 minutes. I am watching the old teevee, laughing it up, waiting it out. I am not leveraged, so I am able to ride it out. Typically, riding out stocks is reserved for idiots. However, I refuse to sell into capitulation. Blame it on a character trait defect.

This is a crash through panic. We’ve seen this before and the end result always is the same: we come back.

I want to go on the record to express my heartfelt wishes and prayers to magical, mystical beings to sap all of the coin from the the purses of my fellow bearshitters wrapped in burlap (DEVILDOG). They’ve certainly earned a place in my dark heart over the years, seeing them make one massively bad call after the next. All of the stuff that you read online, regarding doom and bloody gloom, is not original content. It’s simply the same story, regurgitated, topped with a new headline, and published anew. If my dog had a SEP IRA plan, I wouldn’t let the clam shuckers from Zeroedge, or any other perma bear sites, manage it for him.

NOTE: I do not have a dog.

Israeli and Saudi markets are down sharply. I don’t care about that. There are rumors floating that the ECB will begin massive buying of Spanish and Italian bonds. Should that come to fruition, this market is going to explode to the upside, skull-fucking every single short within a 50 mile radius of me, as well as worldwide,  then lighting their craniums on fire. On the contrary, if nothing is done, so are we.

I am not being melodramatic by stating the obvious, am I? Naturally, the S&P downgrade is irrelevant, as it will not affect our borrowing costs. The main issue is Europe. Having said that, we all know how cheap stocks are and how oversold the markets are at this point in time. But we’re not trading on the fundies here. Let’s wait and see what comes out of Europe. And, don’t forget, THE BEARDED CLAM wishes to have a word or two this Tuesday, at the infamous JACKSON HOLE. All sorts of fabulously gay shit might happen this week.

Making money is “awesome and amazing”, as Mrs. Fly likes to say. But it’s not the game plan now. Right now we stay alive, tuck a few guns in our side pockets, and prepare to shoot people in the face.