Morgan Stanley Out With Bearish Warning on Markets, Cites Interest Rate Risk and End of Cycle

It looks like all of those Xmas presents you were planning to buy might need to be shelved for quite some time. According to Mike Wilson, analyst at Morgan Stanley, the end of cycle game is here, thanks to sharply rising interest rates. Moreover, he believes there is a consensus opinion of, get this, a republican sweep this November — which in turn would be both inflationary and bad for trade.

What in the fuck is he talking about?

Mike Wilson, equity strategist at Morgan Stanley, said in a note that the rise in interest rates has signaled the possibility for end-of-cycle risks, which would cap stock market gains and lead to intramarket rotations.

“We think this creates a tipping point that explains many of the performance themes this week and lays the groundwork for something of a regime change that is very much in line with our overall outlook for the S&P 500, as well as our style and sector recommendations,” Wilson wrote in a note.

Wilson has previously said that he believes a multiyear bear market is already here and stock market gains will be limited with the S&P 500 trading in a range of 2,400 to 3,000 over the next several years.

“Yields are rising but growth will likely slow next year, which means portfolios need to shift,” he wrote in a note.

“If the market begins to believe that a Republican sweep is likely to occur in the midterms, the likelihood of a tax cut extension, infrastructure spending and continued focus on trade protectionism all rise. We view these potential policy paths as inflationary and likely to add to the deficit, providing upward pressure on rates,” he wrote.

If you take a deep breath and grab a hold of your senses, you’ll see that rates haven’t gone anywhere for the past decade.

The idea of what Mike is trying to push is that rates are becoming too attractive for investors and with growth slowing, in spite of nothing pointing to growth slowing, investors will sell their FANG stocks and buy TLT. This is idiot tier thinking of the 33rd degree. Whenever markets dislocate and go lower, we get notes like this — telling us the end of days is here. In this case, however, end of cycle.

It looks like the small respite we were expecting to enjoy this morning is, instead, going to be more pain. The pain threshold is really pushing the ram against the wall. Very soon, this pain might trans morph into outright panic and then mania — providing true discounts, all the while ruining an otherwise fine year for stocks.

This is the other side of the blade that I love and hate so much. I hate it because it makes life difficult and could become scary. I love it because if timed right, it provides a unique opportunity to buy shares cheaply.

Lots of cross-currents to deal with and opinions are being formed. Everyone is trying to make sense of the simple fact that Wall Street the Show is now performing Act 3 — the tragic decline. Soon this act will be finished and the recovery will be underway.

I find myself in a unique position this evening — super defensive because of my methods, but mentally bullish AF. This is a discipline that most of you can’t relate to, having grown up in the weeds from poor families and surviving off cheese crackers most of your adult lives. It’s important to have beliefs and passions, but more important to adhere to the rules. Rules and laws are what separate western might from the savage east. We must always remember to sell our stocks when they go down; but if afforded a position to buy panics — do so with great vigor.

At the close of trading, I placed 10% of my account in TNA, which is equal to having a 30% position in insanity. My cash position in my trading account is now 50%, which provides me with a very beautiful cash position to draw from, if and when the unwashed masses decide to create a mania and reduce their account values to zero.

Over in my quantitative account, naturally, I am 100% invested. As a matter of fact, I am 120% long, as 20% went to a margin purchase of SPY.

In conclusion, you’re young and mostly stupid people, unable to grasp simple concepts. I’m an anomaly and have always been one and will survive any and all market squalls. All you have to do is sit back, relax, and watch Commodore Fly produce magic acts for the masses and then cash in and pretend it was all you.

Good nite.

Anyone else remember the great SAAS crash of 2014? I sure do — it nearly ruined me and killed me simultaneously. Here we are again, with technical levels mightily below normal corrections, the lowest since that dark and grim time.

In a hand picked index concocted by myself of the best SAAS stocks in the market, that index is now lower by 15% over the past two weeks.

Unfortunately, I got shaken out of most of my SAAS plays — because they reached my pain threshold. I’m not in the business of riding stocks lower just to fulfill some lack of confidence or ego gene that needs to be reassured. If I miss out on a run, it is because I planned poorly for it. Better luck next time.

I will, however, buy into the rebound aggressively, removing the risk of buying into a downward spiraling tape.

Make no mistake, we are severely OS. However, these types of markets often cause manias and broken elevator trading action, with calls from the finance media for a supreme flush out to crush an annihilate the unwashed pleb from the field of battle.

BONUS: Our tech algos are most oversold in Exodus history, including financial crisis.

It looked too good to be true, and it was. Since the opening recovery of the 50 point dip, markets have shattered new lows and are now swimming in blood. The Nasdaq is down by more than 115. You can be bullish if you want — but I have no choice but to toss in the towel.

As a result, I sold the following stocks this morning, moving to a 60% cash position.

TEAM, SOXL, NOW, TWLO and SQ.

Again, this has nothing to do with whether I think stocks will bottom or not. If they do bottom, I will, unfortunately, miss out on the uptick. That is the price to pay for buying into stocks too early. I’d rather protect my account than enjoy a nice 10% lift off the lows. By the way this market is dangling, it could very easy close at the lows, causing a new and fresh panic amongst the unwashed, barreling into the November elections.

I’m bound to get a lot of push back on this topic, more so than any opinions on the market. The important topic of what a gentleman should eat for breakfast is one that has been angrily debated for thousands of years. Back in the old days, men would head out and hunt for dinosaurs, take their baby dinosaur eggs, and then eat them with a side of wooly mammoth. Nowadays, we have much bigger options, some of which are cultural, but I’m saddened to tell you in spite of your biases — there is only one acceptable form of breakfast.

Down south, men clad in white suits and straw hats take morning repast over a nice hot bowl of grits and greasy eggs. To accompany this lard, they eat a side order of pig stomach. This is why they lost the war.

Up north, many of us are cold and calculation, no time for breakfast, so we eat granola bars and black coffee, so black it looks and tastes evil.

Out west, there’s no work to do other than enjoy the scenery, so they eat avocado and black beans with eggs over easy and a side order of burrito.

***CEREAL IS NEVER AN ACCEPTABLE FORM OF BREAKFAST, NOT EVEN IN THE DEEPEST BOWELS OF THE SOUTH***

While panned cakes is still universally enjoyed, especially in the Florida panhandle, home of the absolute moron. However, as I alluded to before, there is only one breakfast a man of distinguished qualities should have his chef prepare for him.

And here it is.

French Omelette, two slices of bacon, black coffee, piece of toast.

When making the French omelette, it’s important to roll it over three times and for it to have zero color. The eggs should be almost done when you roll it over — because it will cook when in your dish whilst rolled. Moreover, after plated, the omelette should be glazed over by a slice of butter for proper finishing. It should be noted, anything more than two pieces of bacon borders on gluttony. And if you take sugar in your morning coffee, you do yourself a great injury. The piece of toast is of course optional, especially for those not interested in gaining weight. Bread is both delicious and enjoyable, but offers zero nutritional value and often leads to fat stomaches and faces.

For more on the French Omelette, I give you Chef John.

That was too easy, hardly anyone died. There wasn’t enough time at the lower levels to stew up panic and cause people to chimp out. Suffice to say, I am suspect of this quick recovery and will not participate in the recovery.

Plus anyway, I’m already long a boat load of SPY and I own SOXL in my trading, in addition to everything else. The 25% cash I have on the sidelines is designated for momentum and rips. While this sort of qualifies as a rip, it’s still every early and anything can happen on evil Columbus Day — the time when some European moseyed down to America in order to execute all of the natives living on the land, getting fat off corn, trading in wampum like god damned savage animals.

Off to drink some coffee.

The news is the same — Chinese-American trade war, blah, blah, blah. We’re flushing down the toilet bowl, as is customary in October, on a Monday, following a hard and horrible close on a Friday.

The main question to be answered is whether this dip is different than the others?

Bottom line: Columbus was a god damned retard, but he knew the earth wasn’t flat and defeated the flat-earthers by discovering America for his Spaniard overlords. Everything he did after that was sort of meaningless, especially his time in Hispaniola, when he chimped out.

Respect your stops. You can always buy back later. If in cash, choose a place to buy dips, but still respect your stops.

Side note: Brazil is +6% on right wing victory.

I’m not sensing any panic in markets and the people I know who trade are almost all united in their allegiance to the Order of the Bull market. I’m not obnoxious to the point that this should get me nervous. There are some who believe the sheep always lead to slaughter. Again, obnoxious. I’m more of the belief the sheep will lead to where the food is hidden. Follow the sheep and BAAAAH like a sheep, and then head out when the wolves come.

Are the wolves coming?

I think if markets drop hard next week we’ll be entreated to a lot of heart attacks amongst the pledged elite in the bull camp. Many will lose faith and start to become afraid of October and what it has meant to markets in the past. I do believe next week is a pivotal moment for stocks in the interim, a make or break time for stocks that could lead to a very healthy bounce and continuation of the rally, or a complete panic, led by a mania and throngs of traders spilling out of their high valuation positions in search of safe haven.

You’d be wise to adhere to your stops.

At this stage of my blogging career, the last man standing in finance blogs who doesn’t cavort the globe atop a bicycle, if you’re not selling positions after they’ve gone down 10%, I’ve failed you. Either that or you’re an idiot. And please, do not take offense when I call you an idiot. You really don’t have a choice in the matter. We’re all born into what we are. Some of us are brilliant artisans and scientists, and others are plain old idiots who resort to criminal acts of depravity for leisure. Life isn’t fair sometimes and we don’t choose to be here. We’re all sort of tossed out into the world and told we could be President if we wanted to. Truth is, none of that is true. But if we’re wise enough to know our limitations and to learn by shadowing others who are both smart and decent, we might just make life interesting enough and profitable enough to be worthy of a legacy.

Enough shit-talking. Futures will mean nothing tonight. Head on over to Exodus and be sure to watch the opening hour of trade with us. We’ll figure it out.

I’m drinking some bullet proof coffee now, not for its ‘medicinal values’, but because I’m attempting to kill myself via clogged arteries. I’m playing the long game and it should be fun and delicious.

Here lies Le Fly — DEATH BY HAMMED BURGER.

So the market corrected last week and now you don’t know what to do. Let’s put some perspective on this dip. The drop from the top is roughly 5%. Some of the higher multiple stocks have fallen more, many dropping 10-20%. But this is standard for any correction.

My Bubble Basket, filled with the highest valuation growth names, is down 6% the past two weeks.

And stocks with growth rates greater than 15% have retreated by 4.8% the past month.

The Exodus Quant shed 1% last month, while the broader indices gained ~0.7%.

Over in Exodus, I doubled down in ZEN towards the end of the session and have 25% cash in my trading account. We are also, in fact, oversold. Here is the data for this signal. Note how the efficiency of this signal increases with number of days held. By the end of next week, we should, in earnest, be back in the good graces of speculators and markets swimming again in gains.