With just 1 day left in January, this month born from hades will easily go down as one of the worst in modern history. From COVID lockdowns to vaccine mandates to Russian military wares on the move steaming towards Europe, we have been frozen with fear and the thaw that is supposed to come from strong leadership vacantly missing, with empty headed Jim Biden at the helm.
Let’s survey the carnage and then formulate some ideas into February.
EV (electric vehicles) -34%
Gene editing -32%
Online retailers -28%
Solar -28%
Semis -25%
SAAS -25%
Cannabis -23%
Chinese Burritos -20%
On the upside
Major oils +18%
Drillers +12%
Foreign Banks +6.7%
Basic Materials Wholesale +6.5%
Broadcasting/TV +3.5%
US money center banks +3%
Regional Banks +1.5%
Consumer Staples +1%
The broadstrokes of the current trends is to be short anything losing money and high valuation and long FCF commodity related stocks and/or banks. I said this in 2008 and I will say it now — it is a fallacy to believe commodities will not get smashed to pieces if the overall economy turns down. The idea of oil going up at the same time GDP plunges is nonsense. The smaller capped stocks were already hammered in all of 2021 before the New Year crash, so this is simply adding insult to injury.
Here is the small capped index in Stocklabs, already BELOW the pre-covid highs.
So what’s next?
In January of 2008 I documented a rally in the bank stocks following a hard correction. It should amuse you to know that most people who were bearish and correct in 2008 lost all of their powder during some of the several fierce rallies that year, amidst almost non-stop government meddling in attempts to assuage the masses. You should expect more of that now, providing we descend lower.
So the Nasdaq finished down 11.9% for Jan 2008 and yet you’d never know inside the final two weeks of the month that happened. Luckily for you, I have been live blogging everything since 2007. So what happened next in 2008?
Feb: -4.8%
March +1.8%
April +8%
May +6%
And what about the bank stocks — the bubble asset class of that era?
XLF/Returns
Feb -11.7%
March -3.7%
April +7%
May -7%
Clearly you can see the pressure was still applied to the banks in spite of the market doing ok during that period. So what worked?
XLE (energy)/ Returns
Feb +9.3%
March -2.6%
April +10.4%
May +5.2%
Look familiar?
How about traditionally defensive areas like Utilities or Consumer Goods?
XLU (utilities/Returns)
Feb -4.1%
March +0.9%
April +5.1%
May +3.6%
Pretty good.
XLP (Staples/Returns)
Feb -0.8%
March +2.7%
April -0.7%
May +3%
How did tech do?
SMH (semis/returns)
Feb +1.4%
March +0.6%
April +6.4%
May +6.8%
Bonds?
TLT (treasuries/returns)
Feb -0.8%
March +1.8%
April -2.8%
May -3%
And now let’s view all of these sectors during the worst part of 2008, October.
QQQ -15.5%
XLF -21%
XLE -19%
XLU -13%
XLP -12.6%
SMH -16%
TLT -2%
Nothing was safe, aside from treasuries.
So what happened?
The contained pressure in the banks became systemic and resulted in plunging GDP and fears that the end of western finance was upon us. Short sellers made a field day and all of those energy bulls were cast into the fires, as oil descended from a high of $140 into the $30s.
Does this correction compare?
Probably not, since shares of MTTR plunging do not have a ripple effect in the economy. Thus far, nothing in this correction can be viewed as a systemic threat. We are seeing inflation, just like in early 2008, and those related stocks are surging while the bubble asset, this time in tech and biotech, are deflating. Fairly straightforward stuff.
The allure is to buy all of the cheap stuff because it’s marked down and on sale. This seems like a good idea but if judging by previous dislocations in asset classes might turn out to be a frustrating toil. Just like your money would’ve been better off not buying bank dips in 2008 — it might be worthwhile to avoid tech “value traps” still trading at 30x sales today.
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Sweet post, Fly. This shit is gold. I can’t believe it is still free for Internet leeches like me. YOLOers should be reading some of this shit, but they won’t.
Not many comments around here anymore but thanks for the view and spending the time to write it.
2008 my investments were mismanaged and i lost 6 figures +
shortly thereafter i took complete control and dumped my couch potato financial guy,
every year since i have been +7-15% per yr,
However 2021 was my best year in the last 18,
big energy positions, +488%, decent sized six figures and no debt,
i think energy still has tons of room to run considering simple supply and demand, opening up post covid, and geopolitical, i.e. Russia/Ukraine, plus the outstanding lack of infrastructure for alternative and green energy, and just look at the european energy crisis it has been a spectacular setup,
when oil tops at 120-140 it will be time to move on,
to what i haven’t decided as of yet,……………
Wow. That is super impressive from losing six figures to making decent six figures in 13 short years. I have never met a financier like you. Do you wear a top hat and monocle? I look forward to more of your geopolitical analysis and how it will impact energy prices. Do you play grab penis with George Soros at Bohemian Grove? I hear that’s the kind of thing Masters of the Universe like you do.
LOL
It is impressive fucked face, back then, I blew $$$ like bananas, 150% over the next 12 years, paid off my 7 figure house,
debt free,
added large to energy in 2020 yielded 4XX,XXX
Did I leave my
Monocle on your mothers bed stand, or your sister, living in the basement must suck Dick eh
You’ve clearly indicated that you have no idea what you’re doing besides gambling. You will likely lose all of your money over time, despite your short-term “success.”
The pros feed on fish like you. My advise it to go all cash. Alternatively, ask a grown-up in your house to manage your money and go back to video gaming.
You sound like you’re mildly retarded.
Am I right?
You are correct sir. I am also correct in claiming you are fully retarded. That makes me twice as intelligent as you which isn’t saying much since most lizards meet that standard.
Thanks. But with the misallocation of capital and of rewards that comes from sustained negative real interest rates, isn’t systemic risk being built every single day?
I am clueless as to how we eventually reconcile with math and reality … or of the timing of what must come. Being clueless, my longs are mostly PMs and basic commodities that eaters have to have. As for trading: I’m down to 2 minute charts.
We know what: math and reality will be reconciled
but no one knows how or when
I’m with ya… Legging into premium gold miners at significant discounts to what I sold them at much higher.
I still have plenty of dry powder because I fully expect them to go lower where they will be triple-baggers from there.
New Hampshire had a hearing on a proposed amendment to peaceably secede from the US. Of course it didn’t pass, but the fact that it was even brought up speaks volumes about the state of the union. There was a proposal for Eastern Washington State to join Idaho. Texit is another one. If there is a major economic downturn, will these kinds of things become more or less common.
I think we should give Texas back to Mexico. Both countries would be better off.
Not sure if war is coming, but Biden’s administration certainly wants and needs one. He needs a ‘wag the dog’ conflict to distract and divert the attention of everyone from the empty shelves, the secret taxpayer funded flights from the border to distribute what the Dems hope will be illegal voters, the rampant inflation, the Keystone/oil price fiasco, the crime and defund the police insanity, etc etc..
CLF is a FCF monster and makes money but has been driven down to Davey Jones locker. It also has heavy insider buying.