Saturday Afternoon at Le Fly’s Library

Some of you know, I am an avid collector of books. I do not purchase paper’d backed trash. Those I use to heat up the logs in my fireplace. I only buy first edition classics, or leatherbound works of art. Since one of you requested a non-finance recommendation list of fine literary works, I thought I’d use this venue to share my favorites.

For those of you saddened by the absence of a movie recommendation, go see THE BIG SHORT. I heard it was really good.

Over the past two years, I’ve been obsessed with the Robber Barrons. This happened after I visited the quaint town of Newport, RI, and got to bear witness to the monuments those lunatics built for themselves. A similiar home of quality and size can be found at Frick House, NYC, which is now an art museum.

What fascinated me about the Newport crowd wasn’t the enormity of their wealth, but how they lost it. To me, the homes didn’t represent grandeur or eloquence, but instead arrogance, narcissm and careless regard for the safekeeping of wealth.

The old Commodore Vanderbilt built an empire that should have lasted a thousand years. Instead, it was squandered in less than 50.

Some of my favorite books this past year, on this topic, include: Fortune’s Children, Farewell to Fifth Avenue and When the Astor’s Ruled NYC. I’ve read many more than those three; but those were my favorites.

My favorite books of all time, without question, are:

The Count of Monte Cristo

Rum Diaries

The Great Gatsby

The Sun also Rises

War and Peace

Scaramouche

Without a doubt, Dumas is the best writer of all time. His prose is both easy to read and eloquent. No one tells a tale like him. Speaking of tales, Dickens is no slouch either. But the issue that I have with Dickens is that his stories tend ot drag on, especially towards the end. He was a master in the english language and an authority on how writers should approach a story. But, for some of you half illiterates out there, he might be a bit too much for you to handle right now.

Start off with Dumas, Fitzgerald and Hemmingway. You’ll thank me later.

KRAMPUS is definitely on his way this year, the evil elf who killed Santa and wants to steal your children. In this case, he wants your stocks. He’s going to snatch them from your portfolios and ground them into clown dust.

Markets have been free-falling after people realized how fucking nuts the Fed and Yellen and Plosser truly are. They aren’t one and done! Are you paying attention to their fucking “dot plot?” They have a plan to get rates back to 4% (lolz) by 2018, which would entail 15 additional hikes.

Do you know what will happen by the time the Fed hikes for the 16th time? We will all be living in a Mad Max world and Le Fly will be a warlord, the thing he was born to be, doling out fresh water supplies to his loyal subjects.

Just today, Fed’s lacker said the January meeting is a live meeting, meaning they might hike again. You’ve got to be fucking kidding me right?

The Fed stole Christmas. Stocks are doomed and the fate of western finance is in the hands of a cromagnon from Kansas, who stores his own refuse in mason jars to fertlize the corn crops in his backyard.

Happy holiday’s!

SUNE is +88% over the past 2 weeks.

RUN is +71%, SCTY is +61%, TERP +58%, ASYS +42% and a slew of others are +30%–all over the past two weeks. While it’s true, the bill passed by congress will usher in at least $40 billion in U.S. investment by 2020, more than double the number of jobs in the industry, to over 420,000–it’s also a moronic thing to chase stocks up this much into a low volume, elevator cable snapped into shaft type of market.

What can go wrong, right?

Then again, remember when ethanol was going to take the country by storm or how cyber security stocks were slam dunks?

Moderate yourselves, young plebs. Nothing is a sure thing, but death and taxes. Just two weeks ago, SUNE was heading for bankruptcy. Now everyone loves them.

Even with the recent run, median p/s are almost half of what they were last year. For 2015, FSLR is the biggest winner, up 43%. But, overall, the sector is down 7%. I must admit, given the carnage in oil, I would have expected solar stocks to all but melt away. But they’ve been resiliant and have the backing of the U.S. govt.

In other words, if you must own these stocks, consider dollar cost averaging. I assure you they will come in.

Who else is working on a Friday after noon, ahead of a drunken week of holiday festivities? “The Fly” is a man of the people.

I thought we’d get a rally. Instead, it looks like we’re getting the opposite, a rout into the bell. All of the little things that looked promising have been neutralized and are now starting to look grey. Very soon, the blackness of this market will infect everything, thrusting us into an uncontrollable vortex of capital destruction.

At this stage, you have several choices.

1. Hold the line; pray for better times.

2. Hedge out market risk via index puts/inverse ETFs.

3. Go to cash and regroup.

I imagine many of you are contemplating the latter, after an arduous year of false starts and half-measures. Do not pity yourselves because others are losing too. That’s loser talk. If you want to make a difference in your portfolios and net worth, it begins with action. Hoping for better times isn’t an investable theme.

At the present, my largest positions are JAZZ, PAH and SHAK. Next week, inside of Exodus, I will be revealing my GARP index for 2016, something I update every 6 month’s, a quasi semi-annually managed portfolio of 15 stocks. Also, I am going to begin a short basket, in order to hedge against the systematic risk that my current portfolio has.

Let’s see what the final of hour spells: rebound or doom.

Breadth is still at 31%. Oil is barely down, which is like up for oil. Silver, gold and solar are higher, the holy trinity of every investor’s portfolio. Copper is also higher; I’m a fan of FCX.

One sector that is raising one of my eyebrows, if not both, are the truckers.

What the heck is going on there? I suppose truckers are lazy sloth like creatures anyway. But we still need food and goods delivered, no? Or, will Amazon send it all via drone?

On a PE basis, the truckers haven’t been this cheap since 2006, trading at 15x. The price to sales ratio is 0.85, a 65% discount to the overall market, again not seen since 2007. Come to think of it, that might not be a good thing, as the market imploded to hell in 2008. One thing is for certain, this isn’t your grandfather’s market, unless grandpa traded the 1929 crash.

Be mindful of the systemic risk that is currently present in the high yield space and how each downtick in your favorite oil stock lends to further deterioration in the credit outlook.

By my calculations, oil needs to rally 20% from current levels in order to quell the fears of high yield. If we get a face ripping rally in oil, many distressed, high debt/eq names will barrel higher by 50%, just like last year. If you recall, the oil and gas space caught fire last year and we all made a small fortune early going. If oil is to rally, it will rally between the month’s of January through March, leading up to the driving season.

I bet you don’t read that often, amidst a 230 point cave clubbing. But the internals are really good for such a large decline, with 40% of stocks trading up for the day.

As a matter of fact, all of my top positions are up. What sort of madness is this?

This is quadruple witching day, into the teeth of Santa’s sled. Odd divergences are afoot, as investors wrestle with themselves betweenn listening to the angel vs demon on their shoulder.

For me, this trade is pretty simple. If there’s ever a time of year to be optimistic, it is now. During 2016, we are going to be harangued by awful, awful things, including the elections. But now is the time to stick our heads in the sand and make believe all is well.

I am long equities with the fervor of 10,000 Mum-a-rahs. Do not fret another 200 point downtick on Monday. That’s a super low probability outcome. Plus anyway, it’s only money. I am sure you can get back out there and make a new fortune.

Le Fly remains 95% long into this faux crash.

This is the last quadruple witching expiration of the year, which is probably going to be wrought with all sorts of chicanery.

In a year when the most reliable trend was down, I suspect the market will go out a loser in 2015, limping through the “Santa Claus rally” as if it just got stuck in the chimney.

On this very joyous options expiration day, expect volatility, pain, and stupidity en masse.

In other words, you’d be much better served reading my archives or eating a sandwich, or both, than trying to trade this muck today.

For the record, I am still 95% long–eagerly awaiting a long overdue squeeze.

What an absurd conglomerate of people we are, making a holiday out of poor fashion sense.

Stocks are set to dive lower today, as oil defies every notion of mercy and sports at $34 handle.

Watch very closely as highly leveraged oil companies start to buckle under. It’s amazing to see names like UPL at $2, going lower. This is the 9th inning for 80% of these speculative oil and gas names. Some of them were building empires, were going to be great American comrporations that intended to employ thousands of people for generations to come. But they couldn’t take the heat in the kitchen when it got hot. They couldn’t hold their butter, manage through the hard times; now they’re going away.

I’d like to think we’re going to bounce soon. It’s hard to make reasonable predictions at the end of the year, a terrible year, where investors are fleeing for the exits, takimg tax losses, etc.

Prepare yourselves for the worst. Go sport a really ugly sweater, get drunk, then fall down a flight of jagged stairs.

Is there a more dysfunctional society than Japan, with their perverted distortions in how they view robots, anime, and their incredibly low marriage and birth rates? Where are the virile men? Oh, that’s right, they’re all playing with their fucking robots.

The BoJ said it would extend the average maturity of its government bond holdings to 7 – 12 years, from 7-10 years, “with a view to encouraging a decline in interest rates across the entire yield curve.”

Also, and I found this to be interesting, the radioactive nation which once housed life in Fukushima wants to partake in a little equity ETF purchasing. Might I suggest opening an account at Motif and creating your own little basket of stocks, you silly little bastards?

Under this new program, the Bank will purchase ETFs composed of stocks issues by firms that are proactively making investment in physical and human capital. The new program will start with purchases of ETFS which track the JPX-Nikkei Index 400.

What does that mean, “human capital?” Anyone?

This sort of gimmick might’ve moved the needle a few month’s ago. But no one gives a shit anymore. It’s late in the year. American fat, rich, men are drunk off eggnog, totally uninterested in more useless Japanese QE. Plus anyway, we have yield curves and high yield junk bonds to panic over.

Japan is down nearly 2%; Dow futures are off by 61.

That’s all.

We’re all well aware of the systemic problems china is facing today. I think it’s important to note the lack of reform or stimulus to combat these deflationary pressures. The number one takeaway from this story playing out is that the great commodity run in copper, steel, oil and in the shipping industry is over, permanently. We may never see big economic growth emanating from those industries again…in our lifetimes.

The report was based on surveys of more than 2,100 firms across China and interviews with bankers, managers and executives. CBB began the series in mid-2012, when its inaugural survey indicated a pick-up in growth from early that year, a forecast later borne out.

The Beige Book’s profit reading is “particularly disturbing,” with the share of firms reporting earnings gains slipping to the lowest level recorded, CBB President Leland Miller wrote in the release. While retail and real estate held up reasonably well, manufacturing and services performed poorly, with revenues, employment, capital expenditure and profits weakening.

The survey shows “pervasive weakness,” Miller wrote in the report. “The popular rush to find a successful manufacturing-to-services transition will have to be put on hold for a bit. Only the part about struggling manufacturing held true.”

“More concerning than overall growth weakness was degradation of two components of the economy that were previously overlooked as sources of strength: the labor market and the impact of inflation,” Miller wrote. Given growth in input prices and sales prices slipped to record-lows while firm performance metrics fell, “it looked like firms were encountering genuinely harmful deflation,” he wrote.

As an investor, it’s important that we accept these new realities and cease trying to find bottoms in asset classes that will never come back, myself included. In 2016, I am going to stay fixed on allocating assets based solely on a top down approach, which will instill certain disciplines that will help me to avoid value traps and “great dip buying opportunities.”