I Told You to Go Home

I was just speaking to a local doctor who got burned in the market during the 2008 crisis. After losing 30% of his assets, he put his million dollar portfolio into bonds. But he didn’t just buy any sort of bond: he bought junk. He was telling me that “stocks were too risky” and that he needed to make “7% per year in bonds”, which I told him was “absurd” and that he was taking on more risk with that strategy than buying blue chipped stocks.

There is a great bubble in bonds. This man is “all in” on junk, ignoring principle drawdowns, providing dividends are paid.

There is a lot of panic in the bond markets these days. California munis dropped almost 4% today.

Look, I am a bull and want to own stocks. I am not shorting stocks because I believe the market can jump higher at any moment in time. I am a bull on housing, technology and finance. But timing is everything.

I will wait a little bit longer to make sure this isn’t a real full blown chinese sponsored melt down. If you bought stocks today, you just weren’t thinking about risk and may have to deal with the consequences tomorrow.

This market isn’t worth buying.

Any of you fine gents trade during the “Asian Contagion” markets of 1998? I built my business off of that crash. My CEO was running in the halls at 11 am, forcing brokers to cover margin calls right away, instead of the traditional 3 pm deadline. There was a panic in the boardroom, one that I haven’t seen since post 9/11 and 2008.

Stocks just got cheaper and cheaper.

I had just moved firms and only had 1 client, brand new to the business, young and fearless. I called people up and told them to buy internet stocks into the weakness. I was buying BYND in size. Well, “size” then was a minor  sub 7 figure position. But it meant a lot to me then. The shares got crushed and I was down to 25% equity on the accounts I assembled.

I stopped going to work because I couldn’t afford the expense of traveling on the subway and eating lunch, as well as dry cleaning. I was washing my shirts in the sink and my wife would iron them at night. That’s how poor I was, unable to pay my bills, living off credit cards.

I got lucky. The market turned because the panic ended. It lasted far longer than anyone expected. BYND went from $8ish to $13 almost overnight. I had small accounts go from $3k to $15k. I was the definition of piker, but tried to change that by building on the momentum the market turn had created.

I’ve told this story here several times over the past 5 years. You know how it ends. I built up a new client base and leveraged myself to the hilt on high beta internet stocks that just worked. The market never looked back and before long I was making over $100k per month.

My life changed, but the good times wouldn’t last very long.

Since I’ve been in this business, the market has melted down on a regular basis. In a way, I am an expert on market crashes and calamities. The one thing that I’ve learned, and could hopefully pass on to some of the younger traders out there, is dislocations tend to last longer than anyone could ever imagine, save Zerohedge. There are significant credit disruptions in the muni and corporate debt markets, as well as government.

Just look at my Risk Appetite Index and cringe, then think, then go home.

If you do not want to be chastised, go visit another site right now, one that is hosted by an idiot who will reveal his weaknesses and insecurities. I want you to remember the pain that you are feeling today, for it’s the result of hubris and financial neglect. Many men before you and after will suffer a similar fate, ruined by short term market swings due to the inability to properly gauge sentiment.

The writing was all over the wall, was it not? We knew the situation, bonds going down, the Fed becoming hawkish, Bernanke fired on the Charlie Rose show, global turmoil, unrelenting melt ups in sub-human stocks etc. The list goes on and on.

Margin interest was at its highest point ever, just before the drop. Coincidence?

Dumb money has been collected since the beginning of time, by those who have staying power and a keen eye for identifying trends. When the last idiot sells out of his positions, zeroing out his account, then the market shall rise. This is the sort of tape that vexes people. I’ve seen it before, in ’97, ’98, 2000, 2001, 2002, 2007, 2008, 2009 and 2011. The story always ends the same: dumb money fleeced and the rich get richer, unless of course you worked for Lehman Brothers.

I am solely fixed on IMMR. We are going down in a convoy. Therefore, we shall rise in one too. It’s redundant and wasteful to diversify right now. I will manage the position and exit profitably before the 4th of July.

Bonds are hardly down this morning. Everyone got lit up; therefore, it makes sense for us to bounce today.

Moody’s downgraded the outlook for Hong Kong, likely at the behest of our shadow government. And, the chinese market entered a bear market, all wonderful things to digest in the morning.

As I watch CNBC, all of the talking heads are incredibly bearish. The same folks were doing lines of blow off their teleprompters two weeks ago.

I am still upwards of 65% cash and don’t have a worry in the world. But we’re gonna bounce today, so be on the look out for divergences.

Are these the clowns who are supposed to threaten American hegemony? How about first displaying a modicum of stability in your markets first, before building a navy?

Asia is bloody red and S&P futs are down nearly 11 below fair value. It looks like a red monday. Will it end black is the question?

Suckers are playing the futures market right now. They can do a 180 reversal if Asian trade is strong, SHIBOR rates drop again and if European markets go up. The yen has been a non-story over the past week, weakening into the decline–a very odd thing indeud. Gold and silver look okay as of now. But the big story is bonds.

Will TLT trade up on monday? For if it does, the market will surge.

As far as stock picks are concerned, I like IMMR, AMBA, FWM, YELP, USG, HOV, BZH, TXI, APO and maybe a little ABV and WNR for good measure.

But I’m not buying any of them, save IMMR. I will average in and then get the hell out. It’s not that I don’t like the stock and feel the company isn’t doing well. It’s just that this market isn’t “good”, in the traditional sense. Therefore, I’d rather spend my time frolicking around the country this summer, than lamenting over the retarded investment communities of the world.

NOTE: S&P futs are -7 below FV

Your stupid bull market is over, jackass.

-Merlin

Even though TLT is not up, I believe the market is trying to anticipate a rebound in bonds. The hard trade here, without a doubt, is to go long. Agreed?

Having said that, I started to average down in IMMR, buying around 30,000 shares sub $12.85 so far. Upon a further decline, I will add to the position.

In short, this is high risk because we don’t know. Recent history suggests the hard trade is typically the right trade and that is long. Nevertheless, I am still overwhelmingly in cash–but actively buying IMMR.

I almost got sucked in by the bottom feeders, but then I read my blog posts and remembered that TLT ruled the roost, not some jackass interested in catching a rip.

My sole strategy revolves around getting out of IMMR. That’s right, I want to sell it, but at a profit.

Currently, I am down 12% on the position, with a basis around $14.5. I intend to increase the size of the position by 30%, reducing cost to mid $13’s, which will then be liquidated in a timely fashion upon a rally.

In order for this to work, I need to buy blood, not momentum. I need the fat margin clerks to blow out of your positions, zeroing out accounts, sending the stock spiraling lower, in order to accomplish this delicate task.

If I fail to do this, worst case scenario, 25% of my assets slowly drips lower into the Asian calamity to come.

Also, remember that the pornographers in Brazil are protesting with fire bombs, demanding that socialism be reinstated. There are significant headwinds and the SPY is only down 2.5% in June. If the market was down 6% or more, I’d strongly consider buying aggressively. However, we’ve been up for 8 months in a row. This is garden variety so far.

We need more blood before true blood can be discovered.

TLT breaks $109.75 and I will start to buy.

I like this look–big flush out followed by perverted buying.

Also, the IYR is up. All we need is TLT to bounce, then we’re looking at a +200 point day.

I am a buyer here.

UPDATE: I paused my buys until market stabilizes.