A Working Theorem on America

Current map of America, as presently situated

When America was founded, the people chose to live along the east coast, mainly the northeast corridor. There is a specific reason for this, much to do about migration from europe and the like. Not before long, men of extreme importance and industry took up quarters in the northeast, establishing it as the stalwart section of this great, new, vibrant world.

Then poverty crushed the skulls of the lower middle class. Couple that with the fact that low-brow immigrants streamed into the nation; we, the people, desperately needed a place to store the third estate.

So we sent them out west.

We published elaborate tales of splendor and riches to be had in the Dakotas and California, most of which were wonderful lies. But it did the job. We used these pawns, these whiskey swillers and grave robbers, to settle the lands, kill off those annoying Indians and build us a fucking railroad. After they did all of that, we simply took the choice real estate for ourselves.

So the question I pose to you is this:

What sort of lineage and genetic gene pool resides in these “utterly useless” areas of the Unites Steaks? One might argue it is a gene pool passed down from charlatans and hucksters, persons of low standing who thought it made sense to take the whole family on a 3,000 mile road trip through dense forests and Indian arrows, just so that they could mine for some gold and become rich. These were the original lottery players, the lady at the bingo machine trying to make it big.

I realize fly over country is now populated with plenty of good people, most of whom are bible thumping maniacs who pride themselves on being good mid-western folk. But I remind you to keep a close eye on these people, for they are the direct descendants of persons of ill-repute, gamblers and vagrants who embodied the term ‘hobo’ and thrusted chaos upon the American landscape, all for the sake of some quick money and cheap opportunity.

What is ‘The Bubble Basket’?

Back in April of 2014, following the sharpest draw down of my professional career, I created a bubble basket, one that mirrored what I imagined David Einhorn’s basket (why not? he seems to be smarter than 90% of managers out there) looked like. He has disclosed to be short about 100 bubble stocks, all high valuation, high hype, low in profits, pieces of offal. My ‘Bubble Stock Index’, placed inside of The PPT is, essentially, a thermometer of risk appetite, the sort of appetite that gets you into trouble.

When the index was created, it cratered down to 80, only to come racing back to new highs, AND MORE, in August of 2014. If you recall, I penned this piece, warning you to sell.

Well, here we are now and the bubble index has been coming in.

Frankly, it looks broken. People don’t have the appetite any longer for this sort of sordid investing. We may bounce from these extreme oversold levels. If we do, I invite you to examine your portfolios and to sell anything trading more than 10x sales. Granted, I own a few high valuation stocks, like PANW and CYBR, but CYBR is meant to be a trade and PANW is long term. If you like SPLK and FEYE for the next 10 years, ignore this post. We’ve all become degenerate heroin addicts in search for a quick fix. Back in the old days, when men were still men, they’d take 90% draw downs and be delighted to have been apart of the game, retired, then jumped out of windows. Nowadays, we whine and bitch and moan about our prospects or lack thereof.

In summary, the Bubble Basket has broken lower and I expect more pain to come, before things start looking good again for you River Boat gamblers.

Oil is crashing through the floor boards and high beta tech stocks have been placed into parallelograms and sent drifting off into outer space. Except one certain tech stock that goes by the ticker symbol CYBR, one of my largest positions.

If you’ve noticed, all of utilities, my one REIT, and TLT are higher too. Like I said, rate sensitive stocks are ideal for this market environment. TLT is telling you that the world isn’t safe and deflation is back. All of this places immense pressure on the carnivale clowns inside of the Federal Reserve, especially those domiciled in retarded ‘farm states.’ That Fed guy, what’s his name, from KC? Yeah, he’s gonna change his mind soon about raising rates.

The oil complex is just torn to bits. I am sure some energy focused hedge fund is crushed under the weight of this decline. Hell, even rail stocks have been crushed, and trucks!

Finally, this ebola thing is permitting some biotech stocks to run higher, ChessnWine has been making a killing in APT and found LAKE real early. But I can’t play these stocks. It’s too faddish. I do own some VICL from about 10,000 years ago. Apparently, they are trying to cash in on all of this infectious crap too.

With european stocks higher and Asia doing ok, we have every reason in the world to rally today.

Let’s be honest here: the market is boring when it goes up everyday. There is nothing like tuning into bbg radio, while driving in the car, hearing stories of panic and calamity. The end of the world scenarios  playing out make for top shelf drama. We all know how the story ends, though, right? All of you malcontent beer swillers, salivating over SPY futures down 13, eventually, will be bankrupted and discarded along the side of the road, for the garbage men to scoop up.

Thanks to President Obama and President Obama only, ebola is in America. There is no one else to blame but him, frankly. Flights should have been shut down and Liberia quarantined. Instead, we have a national panic and this is lending to the negative sentiment.

ISIS is now within 15 miles of the Iraqi airport. We are quickly approaching the last helicopter leaving the american embassy in Vietnam moment there. When it happens, and assuredly it will, there is no doubt it will be a national disgrace.

The oil trade is broken to pieces and deflation is back (extra Hugh Hendry).

In my experience, markets can remain irrational longer than you can remain solvent. Just because we have tanked, that doesn’t mean we should rally. I invite you to manage your affairs and account for another 20% lower in your holdings to properly stress test your accounts.

This is the way I see it: I have about 40% of my assets in a defensive posture. I am willing to lose money on the other 60% because, eventually, I will take that staid money and toss it into the sweet fires of risk, when “that moment” arrives. I will make all of the money back, and more. But before that happens, there will be small rallies and rumors of bigger ones. Ultimately, this is a seasonal thing, the side effect of a corrupt and utterly inept Federal Reserve Chief. Janet Yellen, seltzer drinking moron from Brooklyn, is in far over her head and I am afraid we might need to endure a substantial pullback before she comes to grips with the indelible fact that QE is for life.

https://www.youtube.com/watch?v=ZvclxOKoAug

This is going to be a serious post–because money is serious. Two thousand and fourteen has been dreadful for me. The reason for it was the massive draw down that I took in March-April. Digging myself out from a -35% hole is nearly impossible. Aside from that, this market has been filled with ominous surprises.

I got March-April wrong, from an investment standpoint. But you can’t say that I didn’t warn of this October surprise, eluding to “the path of 2000” a few dozen times since May.

We’re Not Out of the Woods Yet– May 28th

A Late Night Message– July 1st

My Bearish Scenario– July 27th

The Only Reason Why I’m Not Buying Right Now– July 31st

Now is the time to sell– Aug 25th

Fall Back Son– Sept 7th

DEATH IS COMING -Sept 15th

It’s April All Over Again– Sept 15th

Ignore Everything But This- Oct 7th

I post 4 to 5 times during the day and I really like to get fired up on reversals. I have many stocks that are earmarked as long term investments, my personal cash. I also have trading accounts that are more short term. Over the past month, I went from 50% in TLT and utilities to a series of energy and tech stocks, only to stop out of them right before this last leg lower. Believe me, I took losses, but nothing like it could’ve been.

With the proceeds, I held about 50% cash and then bought into the Fed day spike. But, as you know, I didn’t chase beta. Instead, I bought ETR, WRE, HE, TRN and CLR. With oil collapsing, I instantly took hits in CLR and TRN; but the rest of the money, which represents about 35% of my assets, is secure. I also have about 5% cash left.

As luck would have it, one of my other large positions, CYBR, is up this week.

In summary, I lost money this week; but I am still standing and ready to buy these liquidations–when the time is right.

However, my thesis for most of the year was that this would mirror 2000 and the market would careen lower into the New Year. To be clear, I still believe this can happen. Nevertheless, nothing goes down in a straight line, nor up. And let’s be honest with each other, saying “this time is different”, pertaining to the sell off, has been a really bad strategy since 2009.

I know, this time ‘really’ is different.

TLT is the safe haven because there is a flight for safety. This is a classic bear market trade.

Commodities are in the penalty box and have been for sometime. This speaks to global growth slowing (extra Keith).

Utilities and REITs should perform, as investors flee high beta in search for yield. The higher TLT goes, the more attractive ETR gets.

One last point: why aren’t I short?

Because I’ve studied bear markets and have concluded that I could make double digit returns in utilities, without having to risk my face being ripped off on an upside surprise, especially during wholesale market selloffs, like we had today.

Bottom line: I know a bounce is coming and I tend to get excited when I see one; but my overall opinion is one of extreme caution heading into the holiday season.

The viciousness of the sell off is something that I hate to bear witness to. I’d love to get all dramatic and say “I haven’t seen this since the panic of 1907.” But the truth is, I’ve see this sort of bid less drek countless times.

It appears we will close at the lows, after sucking in people mid-day, during a brief respite. It was a false rally and now those who got sucked in will dutifully pay for their sins.

Since you’re here to ponder about me and how I am fairing, let me lend a bit of transparency to my holdings. I am a power man, with ETR being my largest holding. After that, I am a rail man, long TRN. My next three positions are CYBR, CLR and WRE. After that is SLCA, HE, LITB, AAPL and GILD. The rest of my holdings are spread across a number of small positions, all resembling Hiroshima, post WW2. As of now, on this day, I am down 1.3%. My losses are accelerating with the crash-like flavor of the tape.

We are all hoping for a bounce. Therefore, we get nothing. I suppose we get to enjoy robots gone wild, hitting bids with reckless abandon. Anyone who is long chips or oils are completely without money now. Today, a new sector joined the ranks of losers: social media stocks.

Regrettably, there aren’t many safe havens, aside from high yield plays and PEP. I implore you to explore utilities and REITs, for we are in a low rate world. For the love of fashionable Hazmat suits, Kazakistan govt bonds are yielding just 4%.

I wish I could be more optimistic, in the face of overwhelming and dire disaster. But everything is rubble now and the run of uninterrupted hedonism, spearheaded by QE, is over.

One can only pray now for a bounce and a little bit of sweet Jesus mercy for next week.

Amen.

I added to SLCA, TRN and CLR.

Oil reversed higher. Stocks reversed an early deficit, going from -70 NASDAQ to up. Now we are spiraling lower again, for reasons unbeknownst to me. At the same time, the very worst of the human race is jerking off to the redness of the tape, coming to this here blog and making bold, exclamatory comments. Just know, without a shadow of a doubt, there will come a day when I decide to become a vigilant, leave this gentrified life of money management/blogging, and kill you. I am not this stable persona you make me out to be. All of your comments and stupid remarks are being archived, for review at a later date. Just like in April and May, when you approached these halls with hands full of shit, you will walk away from this market action smelling like a horses ass.

The algos are firmly in control of the NASDAQ. It wants to do what it wants to do.

That bottom call that I made 45 minutes ago, it’s gonna have to be put on hold for a minute, possibly a day.

I bought SLCA.

This is the sort of tape where bottoms are made. Every time the market gets like this, all sorts of odd people appear on the site. So you know, inception to date, we’ve banned over 3,000 readers from viewing the site and countless others from commenting. Once you’ve been flagged, your comments will never appear and you shall be banished for eternity. While you may have strong objections to the manner in which I approach the market, none of what you say is actually valuable, in any shape or form. Therefore, ergo, you are banned.

Iran cut the price of oil today, leading people to believe there is a serious glut on the world market, catering to Asia. This is the primary concern behind the price drop.

MCHP warned and is spooking people out of MU and other high caliber names. This is wrong.

My fucking train stock, TRN, is acting as if the railroads have been seized by ISIS. This is all wrong.

I am calling for an intra-day rally and subsequent rally, right here, right now.