This Decline is Different

I went into today’s trade 60% cash. I’ve been in that position since yesterday morning. Even with most of my assets in cash, I lost 3% today. That’s freakin’ ridiculous and I feel like killing someone for that. But then I sit back and think about all of the plebs out there, the less informed, who stepped into today 200% long, then feel a sense of relief that intelligent life still exists and it’s me.

Towards the end of the session, I sold YGE for a 6% loss.  I did so because it can drop another 7% tomorrow. It’s better to take small losses than the largess varietal.

Look, this is very simple, people. It’s either different this time, or not. Well is it?

LISTEN TO ME YOU STUPID BASTARD.

In the past, according to the algos inside the halls of The PPT, stocks bounced quickly and hard when the technicals deteriorated like this. We’ve hit these dour technical levels 8 times over the past year, and 7 times the market bounced for an average return of 3% over a 10 day period. HOWEVER, the data is unconvincing over 1-3 days, with mixed results. I’m objective enough and smart enough to understand that nothing lasts forever, not even POMO.

The Risk Appetite Index has been warning about the danger out there for more than a month. For those of you who are unitiated, the RAI is an index inside of The PPT that tracks credit, worldwide. Have a look.

It’s different this time because Bernanke is going to retire from the Fed and because China is undergoing a credit scare. To alleviate pressures, China will need to cut rates and fast. There is going to be a tradeable low soon–but it isn’t today.

My gut tells me China does a rate cut Sunday night.

SHIBOR

There is a possibility that the Chinese credit crisis to come is about to happen right now. There has been a violent move higher in short term rates in China, something new, something really bad. We all know China has been persona non-grata for most of the bull run, since 2009. However, they could become incredibly relevant if their economy screeches to a halt due to a credit crisis.

However, any continued tightening in credit will be relieved by the Chinese through emergency rate cuts, so there is a catalyst to trade on. That’s why I am not shorting, but opting for cash.

If China goes to hell in a hand basket tonight, longs will lament the day they were born tomorrow.

Let it close without your participation. Raise cash and pick your next fight carefully. This is just beginning.

My buy list is focused around housing, tech and financials.

Everyone is freaking out over Chinese credit. We all know they’re first class liars, men who steal for the pleasure, not need. Last night SHIBOR soared. Borrowing rates are going up in China, which is leading the media to surmise a ‘full blown’ manufacturing crisis is in the works. Don’t believe everything you hear on the goggle box. The fact of the matter is credit is getting tighter everywhere because rates are rising. Remember, just because rates are higher, we aren’t destined to die in a vat filled with pig vomit. Banks bank coin when spreads widen.

The fear is the loss of the Fed bid, plain and simple.

I am getting crushed on the 40% of assets long today. IMMR and YGE are coming in pretty badly. I know the selling is overdone. More than 90% of stocks are lower today, typically a buy signal for stocks. But I’m not worried about losing money on just 40% exposure. My losses will be made up in spades if and when I nail the next inflection point. I need to time it perfectly, get in big, then get out.

I intend to make 10% on my next trade, inside of 2 days.

For now, I am utilizing the tools available to me to find stocks on sale. No one wants to “get back to normal.” We want POMO and we want it all the time.

You can’t say Le Fly didn’t warn you.

Both gold and silver are being washed out this morning, down 5 and 7% respectively. I want you to understand something very important: the capital costs to mine for gold and silver is extremely expensive. Most of these idiots can’t make money at current levels and before you know it, they will be filing for bankruptcy protection. The net asset values of all miners will be marked down today, potentionally leading to credit downgrades.

The miners are the banks of 2008. They are in death spirals. Don’t be a hero. Avoid.

Bonds are getting killed again, with the 30 yr nearing 3.5%. Both Europe and Asia got smashed to the tune of 2.5%. The trend is very easy to identify: full blown liquidation of all assets, sans dollars, due to the belief that rates are heading up.

But it’s deeper than that, lads. The underlying fear is the end of Benjamin Bernanke. He is the bitch killer, the one who regulated bears to fag boxes, similar to what superman did to the villains in part 1. But now Obama wants him gone, replaced by Janet Yellen. The market isn’t going to like that, believe you me. Do you remember how hard the market dropped when Greenspan resigned? No one knew Ben and thought he was a putz. It’s very possible that a new Fed chair steps in and jacks rates higher immediately.

The negative for stocks is the possibility of the Fed bid being pulled from the market. That means we’re on our own again, a very hard spectacle to envision.

Last night Obama fired Bernanke in an interview with Charlie Rose. The very next day, stocks drop 200+. Coincidence, I think not.

^^^That’s the real story.

If The Bearded Clam is out, so is Le Fly.

I am not buying this dip and may take the God damned summer off, positioned like a Caesar, 60% cash, up 31% for the year.

Well, even though the Fed statements didn’t point to tapering, the market is acting as if they did.

IYR is off by 1.6%

TLT is off by 0.8%

The dollar is +0.7%

Stocks are lower.

Bill Gross is on CNBC saying he’s a buyer of bonds here, thinking there isn’t any signs the Fed will unwind. The yen is lower, so that’s good news. I am mixed here. The initial reaction is always bogus. I want to see IYR and TLT rebound before buying stocks again. Those two ETFs are the proverbial canary in the coal mine, with regards to rates and where the market believes they’re heading.

For now, I am still at 60% cash.

The market is trading down anyway.

No word about tapering, so far.

I am working purely off intuition here. Might I preface what I am about to tell you with sheer facts: it’s almost impossible to game the Fed. Just when you think the market will tank, it reverses and applies THE IRON LOTUS to the heads of short sellers. When a melt up looks all but assured, it collapses like a cheap Chinese building in a really poor part of Mongolia.

I reversed my position and sold out of AMBA, for a decent 11% gain. In addition, I sold out of MTU and WETF, making  that two complete sales of companies that I promised to “double up on” should the market decline. Naturally, if the market rises I will go down as the greatest fool who has ever existed on the planet. On the other hand, holding a 60% cash position, while up 32% for the year, at the onset of the summer and potentionally treacherous Fed day, well, that isn’t exactly a bad place to be, quite frankly.

The stark truth is I am yellow, afraid to lose. The man who risks nothing never loses. Having said that, I still have a monster position in IMMR intact and another tradable position in YGE, alongside a few others.

The BDI has been ripping higher, along with virtually all shipping rates, especially for Capesize’s

Top ranked shippers, by technicals, are OSGIQ, STNG, TK, NM, SB and VLCCF.

Naturally, this is great news for the industry. My favorite leveraged play on the industry is FRO.

Over the past month, pandemonium has broken loose on Wall Street, tanking the values of munis, treasuries and high yield corporate debt. Moreover, REITs and utilities have been hammered into panned cakes.

Since 2008, I’ve kept a Risk Appetite Index inside of The PPT to track potential dislocations in credit. It was supposed to warn members of impending doom. But it was a different world  back then. Now Detroit can filed for bankruptcy and the Dow trades up on the news. Truly bizarre.

1 mo view of RAI

Pretty bad, eh?

Now have a look at the chart over a longer time frame.

POW! That chart screams “punch me in the face with a bag of wooden nickels.” Yet, markets have yawned it off, while eating a plate filled with boiled yams.

The Fed is either going to confirm “TAPERMANIA” or deny it, thereby causing a few things to happen.

Under a confirmation of TAPERMANIA, the following should occur.

1. TLT will get smashed.

2. REITs and Utilities will drop 3%.

3. Commodities and the overall markets will undergo significant selling pressure.

If TAPERMANIA is denied, the following should occur.

1. TLT will edge higher. It will not rip, because stocks will do that.

2. REITs and utilities will sharply rebound.

3. Beaten down commodity plays, like Iron Ore, Gold and Coal, will outperform the markets.

4. Market soars.

I do not believe there is a middle ground. I know every single Fed meeting is the most important meeting of all time. The media has a way of over-dramatizing these events. Nonetheless, you shouldn’t enter tomorrow without a game plan. Failure to deny TAPERMANIA will most likely lead to the cancellation of the summer rally, in exchange for 5 weeks of misery.

Rub some VXX on your chests, eat hearty, for tomorrow you will trade from hell.

http://www.youtube.com/watch?v=wXLRgDUtuqg