RISK AVERSE STOCKS RIPPING WITH MARKET

I found what I believe to be a sustainable salient in this rally, hidden under the largess gains of tech. The staples are rebounding strongly today, names like CPB, PEP and STZ are behaving like they want higher. It’s worth noting if we are entering a 1970s type stagflation, only commodities are safe. Nevertheless, we are rallying now — with the Dow +620 — and I am barely up 0.2% for the day.

Why is this?

I trade counter markets and very rarely do I trend when markets are up big. The reason why I am +48% YTD is precisely this reason. I ebb when you flow and flow when you ebb. Knowing this is also not sustainable, my challenge will be to know when to hop onboard the sheep train — because over a long enough time line — the sheep always lead the masses to the pasture.

Into the final hours, I will contemplate whether I need a hedge or not. This tape looks good — feels ok — but one can never be caught leaning to heavily one way or another.

It’s always risky stepping back in after you stepped out to chase a rally. Sometimes it works out and other times it flops. I stepped back in after booking a 75bps morning gain and now my gains are barely 40bps. But I’m not all the way on, only 44% invested with the rest in cash.

With the NASDAQ already up 340 and markets always on edge for an afternoon sell off — I’m taking foolish risks for the sake of entertainment. Perhaps I can sashay myself to a 1.5% gain or more like a 0.5% loss. The correct trade would be to do NOTHING at all and wait for the end of session.

Why?

Because betting on bear market rallies is stupid and the people chasing these rallies don’t have staying power and sell at the first sign of weakness.

My options are now to double down into weakness or hedge into the close for tomorrow’s open.

Prices for raw commodities are definitely coming in and the trend is bearish. You can see it in the price of iron ore, copper, even wheat. Here are the 3 mo returns for some commodity ETFs.

Have a look at iron ore.

We are essentially normalizing post Russian war back to pre war levels. This can only make sense under one single backdrop: the global economic demand is collapsing.

It appears demand destruction is working and this is good news for the Fed, if only stubborn oil can pull in too. I believe energy is unique in this regard, due to supply issues. We will see oil collapse only after we have confirmed massive economic headwinds.

Bottom line: the market is bouncing because that’s what happens when we get oversold. Under the veneer of a nicely up tape is a hideous monster of an economy teetering. I moved to cash, up 75bps for the session. My gains were muted due to my heavy hedges.

Kaliningrad is Russia’s unsinkable aircraft carrier in Europe and is now under a land blockade by NATO via Lithuania. According to the Treaty between Lithuania and Russia, this is an illegal action. To be fair, Russia permitted Lithuania to not only breakaway from Russia, but to also be wooed and won over by the west and is now a proud member of NATO. Russia has only themselves to blame and I doubt very much people will sympathize with the plight of the old Prussian city since Russia has invaded Ukraine.

Nevertheless, RULES ARE RULES and when you break a treaty, the breaker should be prepared to deal with all of the circumstances involved.

RUSSIAN-LITHUANIAN TREATY REGARDING KALININGRAD, 1993https://t.co/4LatUKPN6J pic.twitter.com/ahwCYWMt8c

— The_Real_Fly (@The_Real_Fly) June 19, 2022

Naturally the Lithuanians don’t want their cities bombed to dust; but it appears the United Steaks is in their ear about the blockade and demands it.

This is the official Russian statement regarding the issue, basically threatening war.

RUSSIA DEMANDS LITHUANIAN BLOCKADE OF KALININGRAD END, OR ELSE… pic.twitter.com/SLt6fLf9pB

— The_Real_Fly (@The_Real_Fly) June 20, 2022

Unlike other issues, such as Finland to NATO, I do believe Russia is serious about their threats here. Kaliningrad is of vital Russian importance and by imposing a blockade on the territory, they will have no choice but to view it as an act of war.

In other news, NASDAQ futs are +115 and European racist markets are open for Juneteenth and trading up. I hope you enjoy your newly minted holiday and have time to reflect on the sins of your slave owner ancestors.

In a depraved society, such as the one we are living in now, it’s important to praise the patriarchy whenever possible. Whilst it’s true, there are many evil men out there who partake in wanton acts of depravity; there are also innumerable men out there who make the society a better place — productive, well meaning, thoughtful and caring men.

I’d like to raise a virtual toast to all of the men who decided to breed and raise like-minded, well meaning, and thoughtful children — because God knows that’s exactly what the world needs, more than ever.

On this Father’s Day I intend to move packages to the new home, toiling hard, leaving barely any time to breathe. I might also play tennis, although I doubt it. Nevertheless, I’ve already raised my children and they’re all out of the house and/or in college now.

As a veteran father there are numerous things I would’ve done different if I could turn back time. For the young father’s out there — here are some tips.

DO NOT LET YOUR KIDS USE SOCIAL MEDIA, NONE, ZERO
DO NOT LET YOUR KIDS PLAY MORE THAN 2HRS OF VIDEO GAMES PER DAY
FORCE THEM TO READ BOOKS
DO NOT LET THEM QUIT SPORTS. KEEP THEM IN AS LONG AS YOU CAN
DO NOT BECOME THEIR BUDDIES. YOU ARE THEIR ROLE MODEL. PRESERVE THAT RELATIONSHIP
MAKE SURE NOT TO DISAGREE WITH SPOUSE IN FRONT OF THEM
PRIVATE SCHOOLING
CHORES, LOTS OF THEM.
STRICT SCHEDULING (meals, outings, school) — MAKE SURE THEY UNDERSTAND THE VALUE OF TIME
TAKE BOYS TO PARTAKE IN OUTDOOR ACTIVITIES
DISALLOW DEGENERACY OF ALL SORTS — MOST IMPORTANTLY RAP MUSIC AND WOKE PROGRAMMING
VISIT PLACES OF WORSHIP REGULARLY, EVEN IF YOU YOURSELF ARE AN ATHEIST
NEVER USE FOUL LANGUAGE IN FRONT OF THEM; NEVER LET THEM SEE YOU DOWN AND OUT
SHOWER THEM WITH COMPLIMENTS

Happy Father’s Day Gents. Enjoy the day.

PS: Fuck all of the men who gave birth the past year.

The market never cares about valuations until the market is destroyed and need a narrative to support price stability. The pricing mechanism of stocks has always been a game of confidence. At times this confidence is shattered to pieces, and when it is, the market panics lower. This process replays itself over and over. Back in the olden days they called these occurrences “squalls”.  History is littered with such things and when you’re in them, you really do feel like it’s the end of the world. Alas, the world never ends and stocks, eventually, make higher highs.

In Stocklabs I planned for the fires and have historical valuation data at my finger tips. Here are some interesting facts for you.

I blacked out the avg PS column here because many of you are idiots. This is the technology sector. Look at it and tell me with a straight face it’s cheap, based on historical precedent.

Gross margins are DOWN year over year suggestive that companies are doing things to meet sales expectations. This is unsustainable and if the economy worsens, sales will fall off a cliff.

Earnings are down 12% YOY in tech.

Sales are up YOY, but look at the Q1 QOQ growth -29% v -24% the prior year.

YTD returns per sector with PE, PS.

During previous recessions earnings drop around 20-40%. Sadly, time is the most important antidote for a bad market. Prices stabilize after enough people had been wiped out and expectations are reduced to the point when earnings misses are met with high prices. Back in the 1973 oil embargo induced recession, big companies like MCD fell more than 70% from peak and market did in face SOAR in 1975 by more than 30%. Since we are merely 6 months into our squall, you should expect another year of agony before prices stabilize, if we are to follow the path of previous recessions.

I shed more than 3% for the week, mainly due to never being at the desk — busy with the new home. This is my excuse — what’s yours pal?

My YTD gains remain near +50% and my goal here, heading into the sleep molasses months of summer is to keep them. I am almost always hedged and although this strategy might seem moribund to those following along, trust me I am a professional and know exactly what I am doing.

When out of pocket or rhythm, it’s good to play it small under reduced risk scenarios. God forbid I had remained heavily long commodities into this disaster, I would’ve lost 15% for the week.

Life is long and there isn’t any rush to make money now, in this tape.

For the weekend and Father’s Day I intend to do nothing at all. Food will be without flavor, because who needs seasoning. Alcohol will not be consumed and the cigars will remain stowed away. Life isn’t about pleasure or comfort. Life is about toil, sacrifice, and endurance. I will never be tricked or fooled and I will never again believe. I intend to waste away my days working and thinking, trying my very best not to get hooked and I will most certainly not attempt to find joy.

Good day.

UPDATE: NASDAQ BACK TO SESSION HIGHS BECAUSE FUCK YOU.

It was a nice open, but it’s all dust now — as the market descends back into hell and anarchy. The price action today is especially deleterious because oil is off by 4.6% too. This sort of trading is on par with RECESSIONARY DOLDRUMS and we should soon expect to be ENTREATED with bad economic news.

I’d also like to rattle off a series of comments made by Putin today.

PUTIN SAYS IT IS OBVIOUS THE RULES OF NEW GLOBAL ORDER WILL BE SET BY STRONG AND SOVEREIGN STATES

PUTIN SAYS RUSSIA ENTERS THE NEW ERA AS POWERFUL AND MODERN COUNTRY

PUTIN: WE WILL DEAL WITH WESTERN COMPANIES TOO

Putin:

Sanctions “blitzkrieg” against Moscow never had any chance of succeeding

EU could lose more than $400 billion due to sanctions, which he says would rebound on those who had imposed them

Putin: “Everyone who wants to continue to work/cooperate with Russia is being threatened by the United States.
However, this shows if real leaders are at the helm of a country or not”

Putin: Our partners in the West deliberately undermined international foundations in the name of their geopolitical illusions

PUTIN SAYS SOME GLOBAL CURRENCIES “ARE COMMITTING SUICIDE”

Putin: “The United States, having declared victory in the Cold War, declared themselves the messengers of God on earth, who have no obligations, but only interests. They seem not to notice that new powerful centers have formed on the planet”

PUTIN SAYS UNITED STATES IS PRINTING MONEY AND SNAPPING UP FOOD ON GLOBAL MARKETS

And also…

Gazprom to reduce its supply of gas to Italy’s Eni by 50%

EU: RUSSIA IS USING GAS SUPPLIES FOR BLACKMAIL.

CHINA’S PRESIDENT XI SAYS CHINA-RUSSIA COOPERATION IS SHOWING GOOD MOMENTUM ACROSS THE BOARD

What exactly is going on here?

The West meddled in Ukraine and thought Russia would do nothing and just take it — because hubris. Russia invaded Ukraine and the west went all in with supplies and financial weapons, but failed to plan ahead in terms of needing Russian energy and food supplies and now find themselves in a position whereby their ally in Ukraine is losing 1,000 soldiers per day against a barrage of Russian artillery and now facing down the barrel of zero food and energy coming from Russia as a result of this rift. This isn’t even about the war per se. This is basic planning and the western countries are ill equipped to fight a war against Russia, let alone fight a financial one when the winter is coming and the cold winds sweep through Germany.

The fact of the matter is, and this should come as no surprise, Russia is winning the war in Ukraine and due to the logistics of the situation there is very little the United States can do about it and it’s astounding to me to see these mistakes being made over and over and over by seemingly incompetent people, unserious people. And now we deal with the consequences of their poor and corrupt leadership.

Markets are down 220 Dow and the NASDAQ is barely up, having given back more than 150 NASDAQS since the open. I am 10% FAZ, 10% TZA and 80% cash, down by 30bps.

RUSSIAN STATE TV: IS IT TIME TO DROP THE HAMMER ON DEFENSELESS GERMANY?pic.twitter.com/rujYi5HVFF

— The_Real_Fly (@The_Real_Fly) June 17, 2022

LAVROV ON BORIS JOHNSON AND TRUSS SAYING THEY MUST DEFEAT RUSSIA: “GO ON THEN AND DO IT” pic.twitter.com/EZqfr2NpBk

— The_Real_Fly (@The_Real_Fly) June 16, 2022

Embarrassing.

Markets are gaily up today, NASDAQ rocketing nearly 200 and all I can do is is consume myself with the fact that Stocklabs IS FUCKING DOWN and our server company is trying to find out why. No reasons or rationale, even an ETA.

I apologize for this and will take steps in the future to make sure we aren’t exposed like this.

For now, I am holding my shorts, even my oil commodity long. I am mostly cash, and capping off a week of poor trading, ever more distracted by my house move and dealing with contractors.

As soon as I know more about the server, I’ll let you know.

The only problem with raising rates at a break-neck pace in order to defeat inflation is it also destroys the economy. You can see this as clear as day if you look at the money supply — down the most in 60 years.

Many analysts are suggesting earnings will come down by 20%; but that is being optimistic. I have done the research and the earnings decline for tech/growth is more like -40% from peak. Ergo, all of your PE and PS ratios are MEANINGLESS stats if you are not account for those stark reductions.

Here is the historical PE ratios for the tech sector overall market and below that price to sales.

data by Stocklabs

To get down to 2008 levels, we’d need to see stocks lower by another 40%.

If we are to repeat the 73-74 recessionary time period, the issue here isn’t price but time. We would be stuck/trapped in this type of market until the latter part of 2023.

What’s next?

Lower prices and earnings warning and layoffs.