The Robots are Angry

Today’s big rally is “poof”, swept away with the sands of time. Plenty of people got sucked into this one. I can make your lives 100% easier. Don’t buy anything until you see, at a minimum, a 3% upside move in WTI. Just because we reversed the losses and edged higher doesn’t mean everything is okay.

The algos aren’t very happy right now. Even my hamburger stock is in the hole, down almost $10 in two days, just because.

In case you’re curious, I am in a 40% cash position. GPRO is still my #1 position, but it’s 1/2 the size it was yesterday. I am sick to my stomach–because you know I saw this coming. I chalked it up to being ‘cursed’ and simply waited to be executed.

Tonight’s trade in Russia is extremely important. However, the most important thing is oil. While lower oil prices might mean tax cut for the masses, it spells doom for an industry that was being revered as an American, modern day, industrial success.

The Russian stock market was down 14% today. Following a staggering 650 basis point increase in interest rates, from 10.5% to 17%, the Russian Ruble declined by another 18% this morning. It’s obvious to me that someone is trying to break Russia in two. Over the past decade, Russia has accumulated over $400 billion in cash reserves. I am guessing those reserves are being used to try to stop this rout. But this wave of unremitting panic is too violent for them to arrest.

As a result, global markets have the jitters. We aren’t seeing a panic yet, since western economies are fairly detached from Russia. However, I invite people to remember the ghost of 1998 and how the Thai Baht nearly brought the world to its knees.

Oil is down by another 3.5%– and we are being told this is a good thing. The people on the television are once again alluding to interest rate hikes. Only the family idiot would go on teevee today, seeing interest rates at new lows and panic in the air, and suggest the Fed should tighten. You’ve been mollycoddled all of your lives and now your stupidity has taken on a savage quality to it.

The market has fribbled away any semblance of normalcy in my life. Frankly, I see everything from a cynical perspective, trained in the flames of correction–disciplined to the point of aversion. I see gold taking off and futures spiraling lower. TLT is going to hit new highs and all I can deduce is we are in the midst of a financial panic.

The only sane course of action is coordinated central bank easing, in order to catch this devil by its tail before it’s allowed to manifest and spread its poison to other areas of the global market place.

I’ve always been a big fan of QE. It made my life easier, sort of like a drug that only made me feel euphoric and safe. But ever since the evil Yellen regime took over the Fed, from legendary American hero, Dr. Benjamin Bernanke, the market has been hard.

Now, I am going to gloss over a few points, regarding the prospect of the Fed stepping in to stop the deflationary vortex. Your opinions on whether or not the Fed “should” do more QE is irrelevant. All that you’re required to do is make deductions and logical leaps, without hurting yourselves.

This is the Federal Reserve’s dual mandate:

“The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”

In other words, the Fed is targeting inflation, availability of credit and now the jobs market. In their recent statements, they said full employment and 2.5% inflation rate was part of their new missions to make America great again.

What has transpired in recent months?

Well, the oil and gas industry, a segment of the economy that has created over 1.8 million jobs since 2008, is in ruins. Am I exaggerating? ABSOLUTELY NOT. If the price of crude is permitted to go to $40 or $30 per barrel, every single worker in the Bakken shale will be laid off. The result of massive job losses and calamitous drop in oil will result in a much lower than 2% annual inflation rate.

Ask yourself this question:

If the Fed was perfectly willing to stimulate asset prices when oil was $100 and the oil industry booming, why wouldn’t they opt to stimulate now when the world is 100% assuredly sliding into a deflationary vortex?

Do we simply sit around and wait for Russia to implode, then work out a deal via the IMF 3,000 Dow points lower? Or, does the Fed, for once in their pathetic lives, step in front of this crisis and offer price stability?

In order to stem the rout in the Ruble, Russia just hiked rates from 10.5% to 17%. The last time Russia responded to capital outflows like this was in 1998. I’ve told you about 1998 before and it was nothing to remember fondly. Zero bid trading action. Eleven AM margin call liquidations. Sheer panic.

“The decision was driven by the need to limit the risks of devaluation and inflation, which have recently significantly increased,” the central bank said in a statement

This move by the Russian Central Bank is sure to scare the shit out of people and might lead to a treacherous Asian trading session.

Here are your new problems to deal with and consider.

1. Russian capital outflow crisis.

2. Oil crisis.

3. Iron ore price crisis.

4. Dry Bulk Index crisis.

5. Investor sentiment is horrible.

Over at the rumor mill, lads are suggesting that Russia might be selling gold reserves to raise cash. I don’t view this as being unreasonable, which is why gold is uninvestable. Whether this pushes Russia to act harshly in the Ukraine to buoy Putin’s popularity at home remains to be seen. One thing is for certain: if I was an alien viewing the price action in these commodities and subsequent action in global markets, I’d surmise there was a looming economic crisis in the balance.

The Fed needs to respond right away, in order to help reflate markets. Their mandate is to boost inflation rates and right now we are circling down the deflationary toilet bowl. They should’ve never stopped QE.

I reduced my exposure to equities today, while sneering at my screen filled with amateurs patting each others on the cocks for making successful short sales. It truly is something to behold when you’ve been defeated in an arm wrestle by men with 5 inch biceps.

This whole GPRO trade, one in which I declared I was cursed with, turned out to be an unmitigated disaster. The funniest part of my day is reading the predictability in the stock. It always opens higher and then always punches itself in the scrotum, falling all the day long. The one thing that kept me wholly long, from $68 to $85 back down to $57 is the fact that oil has traded lower. The thesis is lower fuel expenses equals greater retails sales. Unbeknowst to me, GPRO tethered to the price of oil, denominated in rubles!

Some of these people banking coin in GPRO are complaining about its share price ‘being propped up’ by underwriters and pondered if an SEC investigation was in order because of it.

What the fuck? Fuck my life, losing to these bedraggled microbes.

I markedly reduced my GPRO, YELP, BTU and FMSA positions.

While I may one day be proven correct and these stocks lift much, much higher, it is necessary for me to reduce my beta in order to save my life.

This is going to come off more of a screed than a blog written by a reasonable man. I see this dog-faced man on my television, bragging, rather smugly, about his “70% T-bill position” and I want to kick him into an idle sewer hole. Now, following that horseshit, CNBC is interviewing the lunatic, Peter King, who wants to atom bomb Iran and Pakistan–yesterday.

The market is melting down for a variety of reasons.

1. The Russian ruble is crashing.

2. Oil is crashing.

3. Investor sentiment is plummeting.

Note: the third point is the most important. Stocks trade up and down based upon mood. The difference between a market trading 13x earnings and one at 18x is sentiment. If people have confidence, they buy. If not, you get this sort of nonsense.

Since entering the business in the late 90’s, I’ve had the pleasure of experiencing one calamity after the next. This one is a little unique, in that the crash in crude truly came out of left field. But now it’s here. What are the ramifications? Who owns the debt and instruments associated with oil wells? The wildcatters will run out of money first, then everyone else.

Sure, the drop in crude is very positive for your plumber and electrician. It’s bullish for grandma, but bearish for me.

The market demands clarity and hates unknown quantities. Until we know what the damage is, I suspect the market will continue to offer false rallies and crushing defeats. The only thing that I see positive for longs now is the predictability of this rout. When things get too easy for either bulls or bears, the trap door looms.

Futures are well off their highs, following a weaker than expected Empire Manufacturing Index reading. European markets, especially the FTSE, have been selling off for hours. Oil, which was initially lower by 3%, reversed and was up around 60 cents all night long. But now it’s flat and looking weak. I don’t care if RVBD caught a private equity bid, or a slew of analysts decided to upgrade stocks today. If oil cannot go higher after last week’s decline, we are going lower.

Frankly, this is becoming monotonous and boring, seeing the market run up in the morning, only to immediately sell off–leaving investors with garish losses.

There is nothing more to say, so I am not going to bother writing another word.

One day doesn’t make a trend. However, given the frenzied nature of the market and the quick to capitulate nature of the bears, here is a short list of oil stocks that have been beaten down to a pile of feces that might explode to the upside.

3 MO RETURNS

Micro Cap Ideas

SN -76%

CRK -74%

KEG -80%

BAS -76%

Mid Cap Ideas

EMES -65%

OAS -73%

WLL -66%

SLCA -64%

Large Cap Ideas

HAL -42%

WFT -53%

OXY -20%

CLR -56%

Naturally, the night is young and this move is very small, now up 65 cents. However, we opened down nearly $2 per barrel and have been rallying ever since. We’re overdue for a rally here, God damn it.

This just out from out middle eastern overlords, Barrons of Barrels.

“We are not going to change our minds because the prices went to $60 or to $40,” Suhail Al-Mazrouei, the United Arab Emirates’ oil minister said at the conference, according to Bloomberg. “We’re not targeting a price; the market will stabilize itself.”

I think it’s fair to say, judging from statements like that, they invite more selling. For whatever reason, OPEC is intent on walking oil lower.

Bear in mind, these are the same people who maliciously controlled the price at unnatural levels, nearly breaking the backs of all oil importers. Now that the table has turned and the west has become keen developers of crude, a war for market share has ensued.

Oh, one more thing before I go. Remember when I said the world ran on crude?

The real damage, however, is yet to come. By some estimates the wreckage, particularly for the oil-services companies, may add up to a stunning $1.6 trillion annual loss, at oil’s current $57 low, predicts Eric Lascelles, RBC Global Asset Management chief economist.

Classic heart attack close, the sordid ordeal that makes you cry in the shower–curled up like a fetus. I guess this is how I am to be destroyed, by a giant tax cut on the consumer, heavily long consumer oriented stocks. One might deduce that destruction is inevitable, with large margin balances and depreciating intelligence quotients. Nothing you see here today is based upon logic, which doesn’t make it feel better.

A loss is a loss, of course of course.

Early in the morning the tech sector was bucking the trend, even some oil stocks. After 3:00, the margin clerks walked into offices of brokers around the country, punched them in the fucking face, and then liquidated their accounts to zero.

The contagion is real. The devastation of this move, specific to energy, is equal to that of the banks in 2008-2009. OPEC doesn’t seem to care about the decline. I am sure they’re sipping on some tea, whilst the Bakken shale workers receive pink slips.

This close you see today, closing out a week of pure debauchery, is the reason why retail will never come back to the markets. The correlations and the violence of the moves are too much for most to bear, even professionals.

I will hold firm, because “The Fly” doesn’t capitulate into the hole. Feel free to save yourselves and live out the rest of your lives from the middle of a garbage can. I’d rather dive head first into a cinderblock, than sell to these motherfuckers who are covering their shorts.