I bought MU, PAYC, TWTR, APPF and ZEN into the bell — all 5% positions. Couple that with an earlier purchase of EXK and I’ve now allocated 70% of my cash. My portfolio is most unusual, centered around the idea that bonds, gold, and SAAS can rise at the same time. While this might appear to be an odd mixture of complexities, it is well thought out and a cowardly approach to a potential melt up.
Markets did nothing from the opening tick, but drift and fade a little. I’m comfortable with that opaque and haunting benevolence in the tape — because it brings with it a certain verve and demeanor that requires aptitude and a relentless spirit to chase it down. This market isn’t for old men and if you’re not careful, you’ll be burned down to as cinder.
My position is simple: 3-5% directional lift higher towards the top of the range, and then failure after the New Year. My gold positions should cushion any shock to the system and my bonds will hedge. While I’m still 100% long in my Quant portfolio, it is also 50% allocated into a defensive structure. I hope that I’m doing right and have properly analyzed the environment. I’ve been hemming and hawing plenty and vacillating between success and failure, all amount to not much. Not much at all. I’ve prepared and highlighted my thoughts and have been reviewing them in person, LIVE, inside of The Capstone Programme. If you’re confused, unable to invest with honor and for profit, let me teach you what you need to be told. Get into the Capstone.
I don’t want to pawn off the good work of Tyler as my own — so here’s the link to his story.
The importance of this narrative cannot be minimized. We have a situation that is very reminiscent of 2007 playing out now, with rates increasing into a slowing economy, wrought with dangerous amount of debt. Corporate America has $10 trillion in debt, most of it used for the purposes of buying back shares. By doing so, they leveraged into their business models. All is fine and good when earnings are bountiful — but what if those earnings became losses?
During the previous recessions, earnings for the S&P 500 fell by 65-75%.
Losses will be increased, much greater than 2008, and debt covenants shattered to pieces — write downs and bankruptcies will ensure — at a pace unseen before. This is the bearish narrative, woven with the cloth of burlap. You can never escape this fate, believe me.
Via ZH:
Prices for bonds rated CCC or lower (the weakest high yield credits) have dropped about 8.7% since the credit selloff started in early October, according to Bank of America Merrill Lynch Indexes. And as prices fall, yields on CCC-rated bonds have climbed to 11.5% – well above the current coupon around 8.1% (meaning dramatically higher refunding costs).
As about 34% of CCC-rated bonds come due in the next four years, up from 20% in 2010, according to Citigroup, Barrons notes that these companies will need to decide whether to pay down debt or refinance at higher rates. Either way, they will need to focus on cash.
All of which perhaps explains why, as The Wall Street Journal reports, bond investors scrambling to protect themselves from losses are increasingly using bets against the largest junk-bond ETFs.
The value of bearish bets on shares of the two largest junk-bond ETFs hit a record $10 billion in recent weeks, according to data from IHS Markit .
A record 59% of shares outstanding of the largest junk-bond ETF have been sold short, up from about 35% in September, according to data from S&P Global Market Intelligence.
WSJ reports that appetite to short the ETF, operated by iShares, has far exceeded the number of shares available to borrow; ETF brokers have created an estimated $2 billion new shares to meet the demand since the start of October, said IHS Markit analyst Samuel Pierson. Short sellers of stocks and bonds are constrained by the amount of securities they can borrow. But ETF brokers can create new shares specifically to lend them out, allowing for much larger bearish positions.
Additionally, negative bets (or hedges) on indexes of credit default swaps, or CDS, for junk bonds hit a four-year high in November, according to Citigroup .
“There’s been increased interest because people are concerned about the credit market as we get closer to the late stages of the credit cycle,” said Calvin Vinitwatanakhun, a Citigroup credit-derivatives analyst.
And, as we recently detailed, Morgan Stanley strategists now expect this bearish turn in credit to continue in 2019.
The tricky handoff from quantitative easing (QE) to quantitative tightening (QT) that is under way is central to the cracks that have appeared across risk markets and credit markets in particular. Global QE provided the necessary conditions for corporations to lever up, which is exactly how they responded.
Outstanding US corporate credit market debt has more than doubled from US$3.2 trillion in 2008 to well over US$7 trillion today, with the biggest chunk of it coming in the BBB portion of the credit curve, the lowest rung of investment grade ratings. High debt growth has translated to high leverage – BBBs with 31% of BBB debt leveraged at or above 4.0x.
Lower yields driven by QE had important consequences for investor behaviour as well. The search for yield became a driving force which led to substantial inflows into US credit, particularly overseas investors. Also thanks to the Fed emerging as a large non-price-sensitive, programmatic investor of agency mortgage-backed securities (MBS) as part of QE, fixed income investors became progressively underweight MBS and overweight corporate credit. As the cycle got extended, the net result of these flows into credit investments has seen the manifestation of late-cycle excesses in credit markets. High debt growth has led to high leverage and weak structural protections for credit investors.
With the transition into QT, these flows are reversing. We have a marked drop-off in 2018 of foreign investor flows into US credit investments.
The laymen can watch this unfold in HYG, JNK, and later on LQD.
Listen to me now, as if I was Santa Claus sitting inside your house eating cookies. Yesterday’s chicanery is all but a bleak memory. In its place, pure joy and ebullience. I sold out of my SQQQ position and it crushed my spirit for 6.5%. I am doing fine, since all of my gold positions are up. Net, net, on the cash invested, I am up 0.6% for the session.
But more important than that is for you to understand that my trading account, the foolish thing that I broadcast out to the world is nothing more than 25% of my overall account. My quant account is higher by 1.5%, without a care in the world.
Here is what I am going to tell you, so listen closely. Barring some sort of perverted reversal spawn from hell, we are, in fact, going back to the upper boundaries of said FAGBOX.
Observe.
Today’s big ass candle (BAC) give the subtle nod to candlestickFAGS everywhere that all is well and good with stocks.
That being said, given my recent foray in trading intra-day assumptions, I’ve restricted myself from trading until the end of the session. This way I remove any uncertainty that might arise from intra-day chicanery and black plans designed to fool smart men like me into tomfoolery.
We’re very good at surging in the morning. While we might give it all up in a few hours hence, it’ll be worth it entirely. This morning we are entreated to a pastiche of positive news. Since you don’t read or write in any respectable manner, I will tell you exactly what is transpiring now.
1. Xmas is within a fortnight of happening. Santa Claus is gonna swoop in down your chimney and inverse burglarize your homes. The kids will love it and will even entice him and his animals to cavort your living room by leaving him cookies and milk.
2. The thug from Huawei was released on bail last night, only after having to give in to 12 Royal court demands, including $10 million and obtaining permanent residence in Canada. Her job as CFO of one of the largest tech companies in the world has ended. Go in peace. Her extradition trial is scheduled for a few months from now, after which she will be greyhounded into NY in shackles to live out the rest of her days as an inmate.
3. It appears discussions with China over the ongoing trade war are going well. America is winning again and those damned Chinese are going to pay, alongside the Mexicans.
4. Since we went down so much recently, it only makes sense that we now trade higher. There’s a litany of concerns about the market; but none of that matters now. The Fed is going to stop meddling and MUH bull market, and BIG wins, and BIG ass tax cuts and orders of magnitude of things of that nature.
I’ve never seen or heard of a bail hearing lasting this long. But it appears the Canadian judge bestowed mercy unto the criminal, Meng Wanzhou. Perhaps now the Chinese will release the Canadian diplomat?
Here’s the hilarious rundown and absurd conditions set forth by the royal magistrate.
#MengWanzhou's team had proposed 12 conditions for her to comply with if she is granted bail. Judge just read them out in court, but it's unclear whether or not he will agree with them in the final decision. #huawei
Judge: lawyers for #MengWanzhou have assured that Meng and her husband can come up with $7.5 million cash, as Crown wanted a large substantial cash amount for deposit.
Judge: I order: that ms Meng may be released from custody upon her entering into a recognizance in the amount of $10 million, including a cash deposit of $7 million. (with five or more sureties) #mengWanzhou
Conditions: 1) Keep the peace 2) report to 202 1855 Burrard to supervisor 3) provide supervisor with telephone and cell numbers. must be able to be contacted to confirm compliance with conditions. 4) remain in BC 5) reside at 4005 w 28th ave 6) be indoors from 11 p.m. to 6 a.m
7) remain in portion of richmond, North shore and Vancouver outlined by Lions Gate 8) surrender passports 9) have Lions Gate provide 24-7 security 1) comply with Lions Gate employees, allow them access to property
that was 10) comply with lions gate.. 11) Lions Gate can take her into custody, apprehend her. 12) Must comply with the ankle bracelet monitoring company
13) Must agree to pay for all the costs associated with the services of Lions Gate and RSC (ankle monitoring) 14) Must at all times, when not at residence, carry a copy of recognizance and present to police upon request 15) Must consent to any police, without notice to home
Wake up bullish AF. Toss on long trades in the morning, boasting and shit about how you’re gonna buy more. Sashay hard into triple upside ETFs — feeling like a fucking champ.
Later on, bear witness to rally soil itself. Triple upside ETFs become shit. Think the reversal means certain doom, so you sell out and book 2-5% losses on the lot.
Markets continue lower, so you dive into TVIX and TZA. Shit reverses almost immediately and the trade war won again. You panic and book super fast losses in TVIX and TZA, 5% and 2.5%, respectively.
As soon as you sell, markets collapse again and the stock Gods smack you in the face with their cocks.
All in all, because of my allocation limitations, I drew down 100bps because of this chicanery. It could’ve been worse and I definitely feel like going short now — but I’ve lost the right to do anything today — because I trade incorrectly inside of the FAGBOX. I stepped in hard, almost sideways into it, thinking I was immune to the horrors of it, and ended up fucked, forked, radish.
What fuckeries we will have, indeud. It appears the fixer for Trudeau in Hong Kong got himself into a spate of trouble today, leading to his eventual arrest by the very fair and democratic Chinese government.
Micheal Kovrig has been arrested and the CFO of Huawei is still rotting in prison, in the middle of the longest bail hearing known to mankind — which is going on day 3.
More on the seized upon Canadian.
“We are aware of the situation of a Canadian detained in China. We have been in direct contact with the Chinese diplomats and representatives. We are engaged on the file which we take very seriously and we are of course providing consular assistance to the family,” Trudeau said, echoing comments by his foreign affairs department.
“The Canadian government is seized with this case and will continue to speak with the Chinese government,” said Guillaume Bérubé, spokesperson for Global Affairs Canada. “Due to provisions of the Privacy Act, no further information can be disclosed.”
Public Safety Minister Ralph Goodale declined to say whether the government believes it is retaliation for Canada’s arrest it of a high-profile Chinese executive in Vancouver on an American extradition request.
“We’re obviously worried about whenever a Canadian is put in a situation that puts them at some risk or jeopardy, where’s there’s no apparent or obvious cause or trigger for that,” he said.
“So, before we characterize it, we want to make sure we get all the facts. But at the same time we are sparing no effort to do everything we possibly can to look after his safety.”
Kovrig worked at the Canadian embassy from 2014 to 2016 and for a few months in the Hong Kong consulate, and is now senior adviser on north-east Asia for the International Crisis Group, a non-governmental organization that promotes ways to prevent and resolve deadly conflict.
The organization, the ICG, said in a statement on its website: “We are doing everything possible to secure additional information on Michael’s whereabouts as well as his prompt and safe release.”
Without question, this is reciprocity for the barbaric actions of Canada, at America’s request. Nevertheless, stocks are moving higher again and such grandeur is both deserving and appropriate, give the present environs.
This is the dumbest thing I’ve ever seen on teevee, by a President.
Watch it all the way through.
Art Cashin sums it up.
“I have been around for not quite 80 years and I have never seen anything like this … and the stupidity to let it go on,” said Art Cashin, director of floor operations UBS. He added that the televised exchange increases uncertainty around the projects will move forward in a divided government. “It doesn’t look like they’ll get very much done.”
What does this mean for you?
Total doom.
We’re now in the process of negating the reversal hammer of yesterday and potential hollow candle, and instead run headlong into a bearish pattern that is assuredly destined to lay waste to overzealous dip buyers.
I sold all of my upside ETFs and bought TVIX — betting on destruction.
Early this morning I took 5% positions in TNA, FAS, SOXL, and LABU. I did so thinking I’d be wrong, prepared to double those positions by the end of the day. The rationale for such craziness is the idea we’re readying for 2-3 up days of pure Xmas joy. It’s a fair assessment and certainly within the realm of possibilities. Is it not?
Right now, many of my readers are rolling their eyes, UPSET, that I would do such a thing. Fuck off. I’m merely exploring the inner depths of my depravity. Of course I know the risks and I am aware that January is likely to wreak havoc on investors, in a way not seen since the Tulip craze. However, before that happens, I’m interested in a little mean reversion — if I might be so bold.
Everything hinges on HYG. It’s up, so I’m bullish.
I’m 60% long, with lots of gold. My largest holding is TLT — and it’s up — so fuck off.
In theory, we should close at the highs. But if we don’t, head for the hills.
