I’M BACK IN FOR THE WIN

In the face of all of this optimism, who the fuck am I do be downtrodden and glum. I am following the lead of Gap, resident permanent bull inside Stocklabs and going all in long. I will of course place a hedge down, as it permits me to have a restful night.

Also, I will be out most of the day tomorrow.

Also, I will be out much of this week, as I partake in home renovations a la Mrs Fly.

Presently higher by 82bps and pressing higher into the close.

Naturally we rallied hard off the lows, reversing losses and V shaping on both TGT and the NASDAQ. Whatever trickery is at play here, I chose long ago not to participate. I closed out all of my positions before 9:35, both hedges and longs up and now sit in cash higher by 77bps for the session.

If I had held longs, I might be up more, but there was no way of knowing markets would do this — and of course I am not chasing the rally predicated on idiotic notions.

There is a temptation to short here, but I will not do that either, since the market has V shaped up based on the second earnings warning from TGT inside of a month — the market can do anything at all.

The higher probability play is to wait for the market to settle in and then nibble and conclude the session towards the end of the day, fully hedged and prepared for tomorrow.

It doesn’t get much worse than this, TGT cutting estimates for the second time in a month — promising to take pricing actions to correct inventory situation. Look for some clearance sales soon.

Target Plans ‘Pricing Actions’ To Cut High Transportation Costs
– Actions Include Removing Excess Inventory, Cancelling Orders

Look for broad weakness in consumer related names today. Also, bitcoin and Ethereum dumped out last night, producing a wonderful selling environment for COIN and other crypto related stocks today. There is a chance for a fucking full meltdown today. However, and as always, expect chicanery. Although I’d place the chance at the NASDAQ going green today at zero, crazier things have happened. But we need some good news, something, anything.

Markets closed up but well off the highs. In case you’re wondering my approach to chop like this — don’t trade it. I clear out positions in the morning, nibble throughout the day, and then hedge by the close. My hope is for an arb, where my longs outpace my shorts or vice versa. It would be very rare for me to suffer substantial drawdowns trading like this — because I keep ample cash and mostly long commodities which are trending.

I finished the day DOWN 46bps due to the late day drop in VIX. I can accept small losses en route to largess. I am dealing with some personal issues which might be causing me to feel a certain way — but I cannot shake the sense of impending doom. I feel it all around me, an uneasiness that has accompanied me during some of my worst moments of my adult life.

That being said, I’m not a fucking psychic and I don’t believe my feeeeeelings have anything to do with future outcomes. But what I am aware of is the fact this feeeeeeling might injure my trading, causing me to be perhaps too bearish, if there is even such a thing.

It’s easy to get wrapped up in the moment and it’s infectious to feel you know more than others, will profit where everyone else will fall. The truth is, the bear market IS trending and this is the easiest path towards success.

Within the oil complex, it seems from a novices point of view (my own) — most pressure is being applied to the downstream area of the market aka the refiners. At times in the past when crack spreads blew out and attracted all of the hot money into the space, it crested and took late comers down with it as spreads narrowed. However, given the unique scenario in regards to the war and how the EPA is causing all sorts of havoc here under the banner of ESG — I think it’s worth noting when something like this is happening.

321 cracks are sustaining the $50+ levels, unheard of margins. The sort of margins we are seeing now would suggest $300 crude.

You can see below on the 10yr chart, this level far exceeds the time I was buying WNR and making phallic jokes about it.

The stocks in the space are NOT cheap on a historical basis, with VLO trading at 0.43x sales now. But the ratio has been above 0.4 since 2016 and will be much lower by next year, providing these margins continue and the world doesn’t collapse — seeing that sales are roughly growing at 100% per annum now.

Here are the top rated refiners inside Stocklabs.

I chanced upon this tweet from my good friends at Zerohedge and it immediately resonated with me and I’ll tell you why.

"the nightmare scenario we've all been hypothetically thinking about for years, if not decades, is here. Runaway German inflation at the same time as soaring Italian yields." – DB

— zerohedge (@zerohedge) June 6, 2022

Back in 2012 during the PIGS debt crisis, Germany begrudgingly bailed out Italy, Greece, Spain, Ireland, and Portugal. Basically all of those economies are terrible and the theory was at the time, the ECB would collapse. Luckily for the PIGS, Germany caved thanks to American influence and it never happened.

But if such a terrible thing happened now, and it’d be a damn shame if it did, there would be nothing Germany could do to stop it, since they’re racked with inflation. This could be a worst case scenario playing out for Europe.

So what’s the backdrop? Italy never bothered to extend the maturities on their sovereign debt.

Their debt to GDP, like all nations, is even higher than before.

And the market is beginning to smell danger, with Italian bond yields disconnecting from German Bunds. The spreads have doubled in recent months.

FX markets sense it too.

Stay tuned!

Pure stupidity underway and I’m fighting the sudden urge to short everything based upon what I believe is a fallacious reason for a rally.

First of all, natty is up 8 fucking percent and fast approaching $10. Secondly, gasoline prices have never been higher. Thirdly, solar stocks are up 6% because Jim Biden is gonna defeat Russia by lifting tariffs on solar panels. Fourthly, Chinese stocks are roaring higher because who knows? Do I even need to bother to view the news?

The Nasdaq is higher by 200 and I’m not in the mood to chase the moon based off a pipe dream. But I ought to be careful as to not letting my feeeeelings get in the way of sensible trading. After all, if the market believes we’re gonna beat Russia to death with solar panels, I ought to listen.

For now, I’ll stay in cash.

I’m back home after a quick trip to NJ for a wedding. I have been tracking the war closely the past few days as the tensions between NATO and Russia appear to be at a tipping point — with Putin explicitly stating he would “declare war” on the west should any of our long range missile hit inside Russia.

I’m done trying to convince others that war is bad and death is not a preferable option to life and love. It seems, and this goes without saying, I live in a country that is like a death cult — and not just the govt. Sure, the govt is executing these policies — but at least HALF the country supports everything they say and really really like war and US involvement in the killing of others.

Without US weapons in Ukraine — the war would’ve been over weeks ago.

I closed Friday up more than 2% and with a cash position near 80%. I have new house things to do Tuesday and I am certain Mrs. Fly will have me going to and fro after that — as we fetch items to make the new home “super awesome and amazing.” In short, summer trading is here for House Fly, but without Jr at the turret. Since I am a responsible adult and always help others who are in need, I will make sure to pay attention to everything closely in order to provide the people inside Stocklabs with the very best fish the ocean has to offer.

Futures opened up strong — but do not expect that to be the case by tomorrow morning.

I am quite literally the best trader you’ll ever meet.

HAGW — off to the shithole of NJ.

Back in the 1970s inflation was something people live with until the Fed finally got tough and spiked rates. There was oil crisis that began in 1973-74, which started the economic doom, and it ended in 1979 after the Iranian oil embargo of the US and its partners. This had everything to do with war and Israel and the Arab States protesting us. They inflicted this upon the west. This time around, we are inflicting it upon ourselves, but not just with oil — but with an entire array of necessary natural resources that is completely open ended. Back in ’74 we had Kissinger smooth things over with the House of Saud. This go around we have Zelensky and Blinken on team “Fuck Russia” and there seems to be no end to both the war and also the self imposed embargo.

So how did the 1973 oil crisis treat markets?

With vigor and tenacity, culminating in the second longest bear market since the Great Depression — -48% peak to trough.

I gathered some snippets of this time across the web for you to peruse.

Beyond the oil crisis, rising energy costs were only one manifestation of the great inflation that ripped through the economies of the West during the 1970s. Prices rose for several reasons: expansion of government spending on social programs and the war in Vietnam; low interest rates established by the Federal Reserve Board, which encouraged more borrowing by businesses; rising energy costs; and, in 1971, the end of the Bretton Woods monetary system linking the value of the U.S. dollar to the value of gold. The result was skyrocketing consumer prices that outpaced wage increases for workers. Nixon responded by applying artificial wage and price controls to the economy in 1971. They began to produce shortages until, when they were lifted after 90 days, prices skyrocketed again.

AND THIS:

“It was so painful,” says William M.B. Berger, chairman emeritus of the Berger Funds, “that I don’t even want my memory to bring it back.” Avon Products, the hot growth stock of 1972, tumbled from $140 a share to $18.50 by the end of 1974; Coca-Cola shares dropped from $149.75 to $44.50. “In that kind of scary market,” recalls Bill Grimsley of Investment Company of America, “there’s really no place to hide.” Sad but true: In 1974, 313 of the 318 growth funds then in existence lost money; fully 123 of them fell at least 30%.

“It was like a mudslide,” says Ralph Wanger of the Acorn Fund, which lost 23.7% in 1973 and 27.7% more in 1974. “Every day you came in, watched the market go down another percent, and went home.”

Chuck Royce took over Pennsylvania Mutual Fund in May 1973. That year, 48.5% of its value evaporated; in 1974 it lost another 46%. “For me, it was like the Great Depression,” recalls Royce with a shudder. “Everything we owned went down. It seemed as if the world was coming to an end.”

This guy published his diary from the 73-74 crash.

January 14 (Dow, 840)

There’s no consensus on what the new year will bring. Analysts can’t seem to agree on anything, and they load down their predictions with qualifications. Says Barron’s columnist Alan Abelson: “Never have so many said so much to such little purpose.”

But can you blame them? The oil cutoff is having profound economic effects, but how deep it will cut into the country’s industrial muscle is unknown.

The sight of cars lined up for blocks waiting to buy even a few gallons of gasoline is unsettling. The desire of investors to buy stocks seems to be drying up with each trip to the pump.

October 1 (Dow, 605)

Capitulation.

A story in Fortune titled “A Case for Gloom About Stocks” lays the blame for the bear market on inflation and says the fall might not be finished. In the course of a few months the anticipated rate of inflation for 1974 has risen from 5% to 8% and new projections are coming in even higher.

The prime lending rate of banks stands at a prohibitive 12%, and rumors circulate on Wall Street that another Arab oil embargo is in the works.

Fortune sees more gloom and doom ahead–this from the magazine that less than two years earlier had proclaimed, “The flush of robust prosperity is suffusing the economy.”

October 4 (Dow, 585) (THIS WAS THE BOTTOM!)

Another down day–the 11th in a row.

In the past three sessions, the Dow industrials sank below the 600 level. Now there seems to be no bottom, and the sense of defeat on Wall Street is almost palpable.

Word on the floor of the New York Stock Exchange is that some institutional stock portfolios are for sale in their entirety.

But Friday, October 4, becomes, figuratively speaking, the last down day.

On Monday the Dow will rebound smartly, and go up again on four of the next five days.

The bear market of 1973-74 is over, 21 months after it began. At 585, the Dow industrial average is off 44% and won’t regain the 1051 level set on January 11, 1973, for another eight years.

And all around lies the wreckage left by the financial storm.

You can buy McDonald’s for $21 (down 72% since Jan. 11, 1973) and Coke for $46 (down 69%). If Disney was a good value when its P/E stood at 70, on this day it’s a steal at only 13 times earnings. Avon, down 85%, saw its P/E plop from 63 to 9.

No longer will investors refer to such stocks as the Nifty Fifty.

For that matter, a lot of people will never dip their toe in the stock market again, and those who do stay in will bear invisible scars from this experience for decades.

Inflation rate during the 70s (far left)

Market Performance

Biggest companies

Conclusion:
The average stock is down 30%+ peak to trough and many many great stocks are down 70%. However, the SPY is down 14% YTD and down 2% over the past year. The self imposed embargo hasn’t even taken a toll yet, as Europe seems to be playing themselves retarded by banning Russian oil and then buying Russian oil from India and Hungary at marked up prices. Nevertheless, there are other commodities at play here and food. The whole things wreaks of havoc and it’s not going to end soon. And that is the important fact here: time. Many traders believe this crisis will end quickly just like the others and before you know it we’ll be back to record highs.

WRONG.

This inflation and supply shock boogeyman is here for years. Eventually, just like in ’74, we will put in a bottom and learn to live with inflation, but only after the last bull has resigned himself to exile. Down 14% for the year isn’t even a bear market. Brace yourselves for much much worse.