GOLD, BONDS, DOLLARS — NOTHING MORE

Want to survive the fires to come? Get long TLT, GLD, and some god damned UUP.

As markets struggle, these three vehicles are flying higher, both wonderful and resplendent. With gold, we’re at a point in its narrative that demands attention. This is a bull market in the making, believe me.

My exposure to precious metals is EXK, NUGT, AU, and KL. My largest position in my trading account is TLT, and I own zero UUP — mainly because I have plenty of cash on the sidelines — currently at 20%.

Yes, markets can bounce. Yes, you should have long positions for the long term and even some in the short term. But if you’re looking for some assets that will withstand the bear market, only bonds, gold, and dollars work.

Nothing in credit happens without affecting the banks. Ergo, as HYG drops and the prospects of high yield worsens, logic dictates so should the banks.

Goldman continues to break down.

More specifically, the XLF is below its downward barreling channel and looking like it wants to plunge.

I went long FAZ this morning.

The non-stop bitching on Twitter by the PRESIDENT OF THE UNITED STATES makes me feel like he’s just sitting there in an office, like a prisoner, without any power. What is the point of his complaints if nothing is ever done to remedy the situation?

Here’s Trump complaining about the Fed again.

It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!

— Donald J. Trump (@realDonaldTrump) December 17, 2018

Here’s what you need to know.

Futures are -130, a complete reversal of last night’s gains. Gold is higher, yields are flat, and we have 10 trading days left in 2018.

If you’re running money, you’re staying small for the balance of 2018 and positioning for an early 2019 market rout.

Don’t be ridiculous and keep believing this is an ordinary sell off. We have a full fledged rout underway, now braced with a burgeoning credit crisis in high yield. What’s at the center of these fears is a slowing economy. Bear in mind, the last two recessions were met with dramatic 70% declines in earnings.

At the same time, it’s wholly absurd to believe this is anything like 2008. Okay? Don’t always draw for those straws. Negativity is a cancer and infects the mind and turns people into ideologues. I have my opinions and am preparing for the worst — but price action is everything. This crisis can unfold this week, next month, 1 year, or 5 years from now. We will only know it when the prices show us it’s time to panic.

As of right now, I believe it’s time to entertain the idea that this could get significantly worse. Corporations have borrowed trillions of dollars the past decade, allocating most into share buybacks. This year alone, $200 billion in buybacks were made, effectively leveraging into businesses. The way this unravels is credit markets freeze, corporations forces to raise capital via secondary offerings — dilution CRUSHES the helmets of those long stocks.

But before we start telling that story, let’s figure out how to protect short term and long term accounts — something I am very focused on and will be talking about this week in Capstone.

Here are some quick ADD friendly bullet points.

Old, traditional, companies who pay dividends, like TR and PG, are attractive now — because the Fed might pause. If the Fed stops hiking, old man stocks can elevate because cost of capital will remain cheap, negating the premise for valuation contractions.

Maintain diversified in all sectors, including Utilities. Consider that major drawdowns are rare. In 1929 and 2008, the market dropped by 42% and 34%, respectively. In the 2000 market rout, the market only fell 11%, while the Nasdaq dropped much, much more. Diversification is the only way to invest long term.

Draw from two pools of stocks for your investments: conservative and growth. Whichever is outperforming is where you should stay focused.

Hedge long term accounts with allocations into bonds (TLT) and gold (GLD). I know gold has been shit in recent years, but it has been performing much better and with BTC destroyed, it stands to draw in a lot of lost money looking for safe haven.

Inverse ETFs should be used for swing trades only. DO NOT hold them longer than 1 week — due to time decay. You can always buy them back.

Assume your initial purchase point will be wrong. Start positions small, no greater than 5%, and never exceed 15% of an overall account.

If you have a long term thesis for a stock, consider dollar cost averaging.

If you’re trading position is down 10%, ditch it. If your trading position loses it’s catalyst, you have to sell it. Review positions every single day and ask yourself  “would I buy this today?” If the answer is no, you might want to sell it.

I can droll on about these rules you should follow. Some of the more experienced readers here are probably rolling their eyes at some of these — but, believe me, I have a lot of readers new to the market.

The number one rule in any bear market is to survive — live to fight another day. If you’re simply buying and holding — hoping for respite, you’re a victim.

First, let me preface by saying market crashes are RARE events and credit is protected by government. In order for a full blown crisis to foment, they’d need to lose total control. Again, RARE event.

Having said that, I’d like to touch upon something you’ve been hearing about and reading about online — the leveraged loan market. This relatively new and chic form of financing has quickly emerged as the preferred method by which private equity FUCKTARDS use monopoly money to seize control of real businesses and then leverage those balance sheets in order to make EXTREME commissions.

I have a lot of fancy graphs to display in this post, but first this from CNBC and then FT.

Source: FT

An important shift in how companies finance themselves has reached a milestone. The leveraged loan market has officially become a $1tn asset class and is catching up fast with US high yield or junk bonds.

Since 2010, the leveraged loan market has doubled in size from $500bn while US high yield has expanded $250bn to $1.1tn, according to Bank of America Merrill Lynch.

The growth in loans reflects a post-financial crisis shift away from being a “private bank-loan model to a thriving syndicated market with hundreds of participants” that has coincided with retail money flowing into the market, says the bank.

Money has continued to pour into loan funds, where interest rates are floating and adjust higher as the Federal Reserve tightens policy.

That kind of demand has helped fund and drive a record era for merger and acquisitions. “A higher proportion of capital raised today goes towards LBOs [leveraged buyouts] and acquisitions than was the case in 2010,” says BofA, noting how half of money raised since 2016 has reflected M&A, up from a level of 30 to 40 per cent at the beginning of the cycle.

As loans increasingly gain sway, the issue of weakening terms or covenants has been ignored by investors in their hunt for yield. That may be an approach they come to rue once the current cycle turns.

Recently, S&P Global warned investors that weak lending terms for loans posed a risk as the credit cycle approached a peak and deal making had surged in recent months.

The quality of covenants — the protections in a bond or loan document that can limit the amount of debt a borrower can take on or how much it can pay its equity investors in dividends — has steadily weakened in recent years. That has allowed companies to win better terms from investors.

In the past, loans were prized in part for being higher in a company’s capital structure than junk-rated debt. But as more companies pay off their junk bonds via loans, investors face the prospect of being exposed to greater losses in their next credit downturn.

“While we think that compromising on covenants is a natural outcome of where we are in the credit cycle, and that the cost of doing so is low in today’s environment, it does pose a threat for recoveries when the next default cycle arrives,” says the bank.

Sounds awfully reminiscent to the great wonderful credit crisis of 2008, when homeless men were buying mansions and tapping into their HELOCs to buy drugs with, no?

Current CLO issuance, the repackaging of leveraged loan horseshit, now ~50% of overall market.

This is now ~5.5% of GDP.

TIMBERRRRRR.

Perhaps the most dangerous of all is the packaging of these ILLIQUID AF products into ETFs. The ETFs trade wonderfully, but the underlying product usually has a 1 month settlement time. In other words, these ETFs may one day pose as roach motels and exacerbate an already stressed market.

How are those ETFs fairing? Not good.

NOTE: The Capstone Programme went live this week. Book your appointment now and be taught what you need to be told.

Motherfuckers.

I booked a 19.5% gain in WPM. My largest holding is TLT — higher by 0.35%. I’m in a 30% cash position, supremely positioned to buy into the blood.

I won’t bored you with more fears of a credit crisis, but you should be monitoring SNLN, SRLN, and HYG.

DOWN 500. BULLS CAUGHT A VICIOUS BEATDOWN. EXPECT MOAR COME MONDAY.

Off to drink some gin.

A few narratives at play here with short oil.

1. Slowing global growth
2. Trump squeezing Saud
3. Oversupply
4. Long term switch to electric cars
5. Technical deterioration
6. High yield pressures

On the matter of high yield. We’re at the top end of the recent channel, poised to break lower.

Oil itself isn’t attractive here. More importantly, the underlying companies will soon become extremely distressed with the price so low. I suspect share prices will dive lower, in anticipation of these companies forced to raise capital via secondary offerings.

Bearish engulfing pattern is in effect.

Lastly, we have a clean breakdown below recent trend in the IWM, small caps. I expect small caps to underperform markets, and also provide insight into the overall mood of the plebeian investor.

Top picks: AU, NUGT, TLT, DRIP

Shut up.

I was fortunate to have been long WPM heading into today. I sold and escaped with a 19.5% gain. Now that you’re quiet, you should also know my Quant is flat for the day.

Everything is say and do is wrong. All of your ideas, absolute shit. You should sit down and be humble.

I will not make any predictions, because the intra-day moves have often reverted back to the mean. Assuming we closed here, this is a right shoulder of a head and shoulders top, coupled with a god damned death cross. In other words, we’re heading back to the lows and then we’ll probably break lower by another 5% before settling in.

Raise cash.

Congratulations stockTARDS. You’ve managed to bid this market up to vaudeville heights, only to quickly abscond with said gains and now you’re trying to justify what you’re seeing in front of your fucking faces.

BEAR MARKET TRADING and the market has shed more than $4 trillion in value since September. According to BofA, equityFAGS fled stocks en masse last week to the tune of $39 billion — a new record.

Aside from the issues with stocks, there’s the unfathomable concern in the high yield markets — an ongoing fuckery of monumental proportions. Speaking of which, an ‘influential’ analyst just took down estimates on AAPL by 20%.

Here are the details.

Slashing iPhone shipment estimate for the first quarter 2019 by 20 percent to a range of 38 million to 42 million (previous forecast was range of 47 million to 52 million)

He estimates 2018 iPhone shipments of 205 million to 210 million.

2019 iPhone shipments will decline 5- to 10-percent from 2018 to a range of 188 million to 194 million
But Kuo’s note is titled, “2019 iPhone shipments likely to be under 190 million units.” That would fall well short of the current consensus analyst estimate of 212 million iPhone units shipped for the calendar year 2019, according to FactSet.

The analyst, known for having close ties to Apple suppliers, cites lower demand for the iPhone XR, the new more affordable iPhone.

“The increase in orders of legacy iPhone models cannot offset the decline of XR and XS series shipments because of the low season impact,” he adds.

What are we to do? Well, I’m gonna get lit up in my stocks and gold today, only buoyed by my TLT position. My quant account will fall in line with the market. I am not immune to the pangs of agony and the horrors of a market, quite possibly, on the precipice of explicit and irredeemable disaster. I am open to the idea of all this ending, unceremoniously, and without pause. I have cash and will chase momentum to the downside, and hopefully I will be fortunate enough to catch the break. The recent trend has been buy intra-day dips, sell intra-day rips — with an acute overnight bias to the downside. In other words, if you’re shorting at the open, you’re most likely going to lose. But if you hold until Monday on the long side, you’re also setting up for capital losses.

It’s a hard market, no doubt. Do not get discouraged by the vacillation, for it too will end one day, soon revealing a very easy to read trend.

I’ve been compiling the data and parsing over this bond situation and want to remind you this is where it will all end. The series of events to come will start in the corporate bond market, leveraged loans, CLOs — things of that nature. ZH has a great article tonight highlighting the blow up in the leveraged loan market.

Again, there is ~$10 trillion in corporate debt now, about double from 2008 — much of which will need to be refinanced within the next two years. We are already seeing the stress rip apart high yield prices — and more specifically the BBB market — which has been torn to shreds with animalistic vigor.

After that freezes up, the crisis will move swiftly like a warm summer breeze into the pensions, both private and public. Their coverage ratios will get so low — they’ll need to be bailed out. We’ll get to the $1.2 in student loans another night.